Silicon Valley Bank Collapse Sends Shockwaves through Tech Industry and Startup Community

The sudden collapse of Silicon Valley Bank, a top lender in the tech industry, has sent shockwaves through the startup community. California regulators closed the bank and put it under the control of the US Federal Deposit Insurance Corporation (FDIC), which will liquidate its assets to pay back customers, including depositors and creditors. Uncertainty about the bank’s liquidity in the lead-up to its collapse prompted some start-ups to consider withdrawing funds and sparked fears of a contagion risk for the broader financial industry. The fallout has left many in the tech world scrambling to figure out their financial exposure and the impact on their ability to operate.

The collapse of Silicon Valley Bank comes at a challenging moment for the tech industry, with rising interest rates eroding easy access to capital that previously fueled soaring startup valuations and funded ambitious, money-losing projects. Venture funding in the United States fell 37% in 2022 compared to the previous year, according to data released in January by CBInsights. The industry also faces broader macroeconomic uncertainty and recession fears, prompting some advertisers and consumers to tighten spending, which has cut into the sector’s revenue drivers.

The situation has led to mass layoffs and a renewed focus on efficiency, as the once high-flying tech world grapples with financial pressures. The collapse of Silicon Valley Bank may have been worsened by start-ups feeling pinched for cash and needing to withdraw funds. The bank’s closure has left many in the start-up community uncertain about getting their money out, making payroll, and covering operating expenses.

Ashley Tyrner, founder of health food delivery company FarmboxRx, said in an email to CNN that she just wants to know what happens next, wondering whether she will recover her entire eight-figure balance. Parker Conrad, CEO and co-founder of HR platform Rippling, said some customers’ payrolls were delayed due to the bank’s solvency challenges. He added that his top priority is to get customers’ employees paid as soon as possible, and they are working diligently toward that goal.

Investors are also feeling the impact of the bank’s collapse. Arjun Sethi, an investor at Tribe, tweeted that VCs are writing emails to disclose their exposure to Silicon Valley Bank. Sam Altman, CEO of OpenAI and former president of startup accelerator Y Combinator, suggested that investors should consider offering emergency cash to their startups for payroll or other expenses. At least one company attempted to get cash quickly by offering a last-minute sale. Ben Kaufman, co-founder of venture-backed toy store and online retailer Camp, said in an email to customers that most of the company’s cash assets were held “at a bank which just collapsed.” He announced a 40% off deal on all online merchandise for customers using the code: “BANKRUN.”

Even before the bank’s collapse, some startups were said to have considered pulling their money from the bank, according to media reports and public posts from venture capitalists. Founders Fund, an influential venture capital firm founded by billionaire Peter Thiel, reportedly advised its portfolio companies to pull money from the bank. Meanwhile, Tribe Capital urged companies to be mindful of where they keep their money and how they fundraise.

As the situation at Silicon Valley Bank continues to unfold, prominent venture capitalists have called for calm in an attempt to avoid fueling panic. Mark Suster, a partner at venture capital firm Upfront Ventures, urged those in the VC community to “speak out publicly to quell the panic” around Silicon Valley Bank, saying that classic “runs on the bank” hurt the entire system. While urging people to remain calm, however, he acknowledged that some had already withdrawn money and that it was a scary situation.