"Expect Mass Layoffs..." - The Real-World Impact Of SVB's Failure
For most people in America, the news that a 'bank in Silicon Valley' has failed will be forgotten quicker than a story about soaring shoplifting in their local supermarket.
Reality is that the contagion of the shuttering of the 18th largest bank in the US are widespread.
SVB is in fact the second largest (by assets) bank failure in US history after WaMu.
First things first, there is a long line of depositors who are over the $250,000 FDIC insured limit (in fact only somewhere between 3 and 7% of total deposits are insured). The following list, while incomplete, is approximately sorted by size of exposure:
USDC - Crypto Stablecoin run by Circle - Silicon Valley Bank is one of six banking partners Circle uses for managing the ~25% portion of USDC reserves held in cash. While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle & USDC continue to operate normally.
ROKU - Roku had 26% of its cash, $487 million with Silicon Valley Bank
BLOCKFI - BlockFi has $227 million in "unprotected" funds in Silicon Valley Bank, according to a bankruptcy document, and may be in violation of U.S. bankruptcy law.
RBLX - Roblox said 5% of its $3b cash and securities balance is held at SVB.
DNA - Gingko Bioworks: Only the cash balance of the company's wholly-owned subsidiary Zymergen Inc. is held in deposit accounts at SVB, representing approximately $74M or 6% of the company's cash and cash equivalents as of December 31, 2022
RKLB - RocketLab USA had about $38 million in its accounts with the bank, representing about 7.9% of the startup’s cash and equivalents
LC - Lending Club warned about potentially losing funds on deposit at SVB of $21 million, said amount isn't material to its liquidity position or capital levels, and doesn't pose a risk to the group's business or operations.
PAYO - Payoneer: Of the company's approximately $6.4B in total cash balances as of December 31, 2022, less than $20M is held at SVB
PTGX - Protagonist Therapeutics considers its exposure to any liquidity concern at SVB to be limited, given that cash held at SVB is approximately $13 million as of March 9, 2023.
ACHR - Archer Aviation entered into a $20 million loan with SVB in 2021, $10 million of which is due for repayment in 2023
COHU - Cohu announced that it has deposit accounts with SVB with an aggregate balance of approximately $12.3M, which is approximately 3.8% of the company's total cash and investments.
IGMS - IMG Biosciences: 'As of March 10, 2023, the Company holds less than $5.0 million in deposits at SVB. Therefore, the Company believes it does not have any material exposure to any liquidity concerns at SVB.'
RYTM - Rhythm Pharmaceuticals announced that it has deposit accounts with SVB with an aggregate balance of approximately $3.4 million, which is approximately 1.1% of the Company's total cash and cash equivalents.'
SYRS - Syros Pharmaceuticals discloses that, as of March 10, 2023, it has two deposit accounts at Silicon Valley Bank. One of these accounts has a balance of less than $250,000, and the other has a balance of approximately $3.1 million pursuant to a letter of credit that the Company was required to provide to its landlord in connection with the execution of the lease for its corporate headquarters...
EYPT - EyePoint Pharmaceuticals currently maintains a de minimis amount of cash, in the single digit millions of U.S. dollars, with Silicon Valley Bank (SIVB)
ATRA - Atara Biotherapeutics currently maintains an account at Silicon Valley Bank (“SVB") holding cash deposits of approximately $2 million, which amount the Company considers to be immaterial to its liquidity.'
ISEE - Iveric Bio currently maintains a de minimis amount of cash and cash equivalents, in the low single digit millions of U.S. dollars, with Silicon Valley Bank ("SVe").'
VERA - Vera Therapeutics currently holds approximately 1.2% of its cash and investments with SVB. Accordingly, the Company considers its risk exposure relating to SVB to be minimal.
XFOR - X4 Pharmaceuticals had approximately 2.5% of its cash deposits with SVB.
CTMX - CytomX Therapeutics does not consider its exposure to any liquidity concern at SVB to be significant. The cash held at SVB in CytomX’s operating CTMX account is at or near the FDIC-insured limit of $250,000. CytomX also maintains a deposit account at SVB under a standby letter of credit issued pursuant to its office lease for approximately $917,000.'
AXSM - Axsome Therapeutics has material cash deposits with SVB.
WVE - Wave Life Sciences aggregate amount of the company's cash and restricted cash held at SVB is approximately $1.5M.
JNPR - Juniper Networks maintains operating accounts at SVB with a minimal cash balance of less than 1% of the company's total cash
QS - QuantumScape has very limited exposure to SVB, with only a low single digit percentage exposure relative to both the Company's total liquidity and total assets.
And, investors are out a lot...
Spoiler alert: it wasn't a very compelling situation https://t.co/R5IFz2mrFe— zerohedge (@zerohedge) March 10, 2023
Whenever a company stumbles, shareholder lawsuits become pretty common. As Bloomberg reports, already this morning, law firms including Faruqi & Faruqi LLP, Schall Law Firm, Pomerantz LLP and Girard Sharp LLP have put out press releases saying they’re looking into SVB and that investors who’ve suffered losses as the bank’s shares slumped can contact the firms’ attorneys.
Brad Hargreaves explains in a brief thread how SVB's closure & receivership is going to have a massive impact on the tech ecosystem.
SVB was not just a dominant player in tech but were highly integrated in some nontraditional ways.
A few things we'll see in the coming days / weeks...
One, SVB was incredibly integrated into the lives of many founders. Not just their startup's bank & lender, but also provided personal mortgages and other financial services. A whole mess for FDIC (or the eventual buyer) to unwind.
Two, any "uninsured" balances at SVB - those above $250K - are in jeopardy. FDIC plans to pay them out "as it sells the assets of SVB". Lots of startups exclusively banked with SVB as *this was a covenant of their debt*!
CEOs yesterday faced a hard choice: Pull your deposits and go into default on your venture debt or risk losing everything if the bank failed. Many chose to hold tight as SVB's outright failure seemed outlandish.
Now they may not be able to make payroll next week.
Unpaid wages pierce the corporate veil, so boards are *incredibly* sensitive to employing workers they may not be able to pay.
Expect mass layoffs later today, Monday at latest.
And given the weak fundraising environment, a number of startups have been reliant on venture lenders - e.g., SVB - not aggressively pursuing amortization of debt or triggering default for covenant foot faults (e.g., cash balances). How will the FDIC handle this? Mass defaults?
Having run a startup through the GFC, this is the first thing I've seen since that is even vaguely reminiscent of that time. Total clusterfuck.
One more thing: SVB also offered *wealth management services* to many of its founders. So your corporate lender, corporate bank, personal mortgage lender, and family's wealth manager is... all one bank, which is now in FDIC receivership. Fun.
JPow got his fucking debt crisis alright
Launchpad Capital founder Ryan Gilbert explained the impact of this mainstay of the VC market's failure...
Launchpad Capital Founder Ryan Gilbert had money in Silicon Valley Bank. He joins us to discuss the bank's closure, what it means for his company, and to the Silicon Valley venture capital market. pic.twitter.com/VNyJ9E4Qpb— CNBC Halftime Report (@HalftimeReport) March 10, 2023
Garry Tan, the CEO of YCombinator echoes what we said just two days ago, namely that "this is an *extinction level event* for startups and will set startups and innovation back by 10 years or more" and warns that "30% of YC companies exposed through SVB can’t make payroll in the next 30 days."
The most important thing the FDIC and the US Government can do right now is *make the receivership as short as possible*
There are thousands of US startups that banked at SVB, often as their *sole bank*. $250K per account is not going to last long.
The #1 pressing issue for these startups is *payroll* - you can't have people work if you can't pay them.
This means mass furlough.
It might mean thousands of startups die before the FDIC gets through its receivership process and releases the funds.
From what I hear, there are venture debt options coming from providers like Brex, but we're going to need *a lot* of options in order to avoid a mass shutdown of all American startups in the next few weeks.
This is an *extinction level event* for startups and will set startups and innovation back by 10 years or more.
BIG TECH will not care about this. They have cash elsewhere.
All little startups, tomorrow's Google's and Facebooks, will be extinguished if we don't find a fix.
30% of YC companies exposed through SVB can’t make payroll in the next 30 days.
If you or your company are affected, I recommend that you reach out to your local congressman to get this on their radar TODAY.
So bail out Silicon Valley now, or something.
Another example of a firm directly impacted (and its staff and clients), comes from Parker Conrad, CEO of HR/IT/Finance firm Rippling, facing payrolls problems:
We (Rippling) discovered yesterday that Silicon Valley Bank had unexpected solvency challenges. Just now, we learned that the FDIC had stepped in and effectively shut down SVB.
Rippling has historically relied on SVB for payments rails for our payroll and other products. In light of yesterday’s news, we immediately accelerated a planned switch to JPMorgan Chase.
Effective immediately & going forward, Rippling payroll runs will process through JPMC. However, pay runs in flight for today out of SVB have not been paid. The latest we heard from SVB this morning was that this was an operational delay and funds will be released.
However, FDIC involvement makes us skeptical of the assurances we are getting from SVB.
Our top priority is to get our customers' employees paid as soon as we possibly can, and we’re working diligently toward that on all available channels, and trying to learn what the FDIC takeover means for today's payments.
We have contacted customers with a configuration change they need to make for us to successfully process their payroll, going forward, via JPMorgan Chase & Co.
Going forward, payroll runs through Rippling will have no exposure to SVB. But today's payment delay is a result of pay runs initiated early this week, with funds in-flight through SVB. Our full focus is on getting these employees paid as quickly as possible.
So, it's not just 'rich' venture capitalist 'folks' who could be suffering.
It's real world businesses and their clients and employees who are feeling the direct pinch of SVB's failure today.
Additionally, as @WallStCynic notes, public companies with uninsured deposits at SVB will have to start making some very uncomfortable disclosures soon.
Finally, we note that the well known problem with bank failure is that they are always non-linear... and we are far from seeing the final fallout from this one.
Furthermore, the shift in what flows they have available to JPMorgan is noteworthy since the hope, once again, becomes, that these mega banks are 'too big to fail'.
Oh and one person not to shed any tears for is the CEO...
..who dumped $3.5 million of his stock just last week - good timing eh?