By Krystal Hu, Anna Tong, Jeffrey Dastin and Greg Bensinger
(Reuters) - A wave of relief swept over Silicon Valley Sunday following a tense weekend of board meetings, emergency funding plans and pleas for help after regulators stepped in to backstop the region’s embattled namesake bank.
Banking regulators said Sunday evening that depositors at Silicon Valley Bank, which was shuttered Friday, would have access to their funds Monday, putting to rest fears that startups would struggle to pay their employees this week. The bank's closure had followed interest rate hikes that hurt its startup customers and a failed capital raise attempt, spurring deposit withdrawals.
Despite the palpable relief, questions still remained about the funding environment for startups, which had come to rely on Silicon Valley Bank for support to back unproven businesses that larger banks eschew. And the bank still had not found a buyer as of Sunday, which was a hope of many venture capital firms and tech founders hungry for positive news.
“This is a huge step in restoring confidence in the startup community. Before this move many startups were planning emergency measures which would have likely led to more layoffs and furloughed employees. The actions have provided much needed certainty that everyone can make payroll on Monday,” said Jon Sakoda, founder of early stage venture firm Decibel Partners.
The bank's sudden shutdown sent a chill through Silicon Valley amid an otherwise gloomy period marked by tech layoffs and a pullback in spending as consumers tightened their wallets. Company executives, many of whom stashed all of their funds in Silicon Valley Bank, took to Twitter and other social media networks to beg for relief.
Sam Altman, who heads OpenAI, known for its ChatGPT artificial intelligence software, was among those who answered the call, offering emergency funding to startups to help weather the uncertainty and pay their employees, Reuters reported Sunday.
Tech investor Asheesh Birla had spent the last three days working nonstop, between advising companies about how to make payroll, or urging people to call their local politician. He is very happy with the federal government’s decision to backstop deposits but not make the bank’s equity holders whole, he said.
“Companies should never have to worry about whether or not their deposits are safe,” he said.
A joint statement Sunday by U.S. government bodies including the Treasury Department and Federal Reserve indicated taxpayers would not bear any cost associated with the new plans around Silicon Valley Bank. However, shareholders and some unsecured creditors won’t receive the same protections.
Birla predicts that in the next few days, startups will rush en masse to open accounts at large banks. And for companies that hold considerable cash positions, he thinks that there will be a surge of interest in hiring treasurers who will work to minimize the amount of cash companies are holding at any moment.
Silicon Valley Bank until now had been a reliable source of funding for startups relative to other banks.
Doktor Gurson, CEO of Rad AI, said the news represented a “collective sigh of relief” after days worrying about how to make payroll for his startup with some 65 employees. “I lost a couple years of my life over the weekend to be honest. It’s been a bit of a roller coaster.”
Still, the saga is far from over. Even as Rad AI plans to move money to new accounts in bigger banks, exactly when it can access all its SVB funds remains unclear, he said.
“I don’t know that there’s any safe place to go,” he said. “I’m still a little bit nervous of what could happen."
He added, "We’ll still need to assess what we’re doing moving forward.”