Inside the SVB bank run panic of an Australian startup trying to get its people paid

Over the weekend the startup ecosystem was in panic over the collapse of Silicon Valley Bank (SVB). And Australia was certainly not spared. Founders and employees alike were finding out on Saturday morning via news outlets and social media.

With little official information to go off on and only US$250,000 of insurance offered by the Federal Deposit Insurance Corporation (FDIC), there was a bull rush to get out as much as possible. With no guarantees of success.

The race to get employees paid

Remco Marcelis is the co-founder and CEO of Standard Ledger — an accounting and CFO service for startups. He was one of many Aussies in this position.

He spent the weekend trying to help a client — who opted to remain anonymous — to remove money from its SVB account, which was thankfully under the US$250,000 threshold.

Marcelis was still in Adelaide for its Southstart conference when he heard about the collapse on the news. And he had the kind of response we can all relate to.

“Oh shit, the bank’s collapsing. Get the money out,” Marecelis said in a call with SmartCompany.

He and the founders were flying blind.

“We didn’t even know anything about thresholds… it turns out we were below it. But we still didn’t know whether we were going to get money out.”

What the team was attempting to address was an immediate concern — payroll. It was due on Monday.

“Payroll ain’t gonna go through, what what are we doing,” Marcelis and the founders asked themselves.

“First thing, tell employees. ‘Hey, this is going on, you’ll hear about it in the press. There’s likely to be a delay, but we’re on it.'”

“Basically we were trying not to panic employees even though we were a bit panicked ourselves.”

They began working on an alternative, which led them to get in contact with Australian fintech, Airwallex.

“We’ve been backwards and forwards a few times a day spinning up an Airwallex account attached to our US entity over there.”

This solution was still being rolled out minutes before our phone call so the employees could get paid.

“I can’t speak highly enough for how responsive the crew has been. Yes, it’s an opportunity for them — they actually sent out emails Saturday [offering help].”

Help has also been offered to impacted startups from VCs such as Tractor Ventures. Marcelis’ clients are unlikely to take up these offers, but he says it’s nice to have options.

“Luckily our total cash holdings are less than the threshold. So that frames the size of it, it’s not like millions tied up in there. But for us it’s the human element. There are 10 employees hanging off the other end wanting to get paid.”

It’s a lot to think about, even for those companies that didn’t have to worry about being over the threshold.

“Next we better make sure that all our customers that owe us money get told our new bank account details as well,” Marcelis said.

“Now we’re going — ‘Alright are we all breathing now?'”

Fortunately, most startups will be now. As this story was being written the US Department of Treasury released a statement saying that all now-former SVB depositors will be protected and should be able to start accessing their funds from Monday US time.

“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors,” the statement reads.

“Depositors will have access to all of their money starting Monday, March 13.  No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

It also states that shareholders and certain unsecured debt holders will not be protected.

What happened to SVB?

The story of why SVB failed is a long one. The origins can be traced back to the aftermath of the Global Financial Crisis. Interest rates were low, which led to an absolute boom in the venture capital space.

With hot young startups opening accounts but not needing as many bank loans, SVB invested in government securities as an extra way to make cash.

But over the last little while we’ve seen interest rates skyrocket, and this created two problems for SVB. Its securities were worth less and VCs weren’t spending as much in a high-interest environment.

Fast forward to last week and SVB sold US$21 billion of its bonds, which resulted in an after-tax loss of $US1.8 billion. It also announced a plan to sell US$2.2 billion in shares.

This was just a few weeks after Greg Becker — the CEO of SVB Financial, the bank’s parent company — sold 12,500 shares for US$3.6 million. 

This was all disclosed publicly, which resulted in a bank run — where depositors were quickly removing their cash over liquidity fears. This was helped along by the likes of Peter Thiel’s Founder’s Fund and some other VCs advising their portfolios to extract their cash.

Money was coming out fast, with US$42 billion being pulled on March 9. By the next day, regulators were involved, with the FDIC becoming the receiver of SVB. Accounts were frozen and transferred to a new entity — The Deposit Insurance National Bank of Santa Clara.

Still, startups were left unclear on whether they would get their money back — especially those with holdings over the US$250,000 insured by the FDIC. Fortunately, as stated above, this was cleared up this morning.

But despite the good news, ramifications will still likely be felt. The collapse of SVB is the second largest in US history, following Washington Mutual during the GFC.  This is far from over.