SVB Collapse: Hundreds of Startups Facing Cash Crunch and Payroll Crisis
Silicon Valley Bank (SVB) has become the second-largest bank failure in US history after regulators took control of the institution on Friday. The California-based financial institution, which has been the go-to lender for tech startups for decades, had been in talks to sell itself but the sudden collapse of the bank sent its stock crashing, prompting a run on the bank.
The Federal Deposit Insurance Corporation (FDIC) took control of SVB, and said that customers would be able to access their insured deposits up to $250,000 by Monday morning. If more than the specified amount is received, a “receivership certificate.” will be issued. Many Silicon Valley startups had hundreds of millions, or even millions of dollars, deposited in the bank—funds they employed to operate their businesses and remunerate personnel. It’s unclear at this point how much of the money is left.
The collapse of SVB has pushed tech investors and startups to scramble to figure out their financial exposure to the bank, with founders worrying about getting their money out, making payroll and covering operating expenses.
The bank’s downfall was due to a combination of rising interest rates, a slowdown in venture capital, and the bank’s non-diversified exposure to one industry. The bank was so concentrated in its business that it catered to venture capital and private equity and had more than $200 billion in assets when it failed.
The FDIC insures deposits up to $250,000, but this may not go very far for many companies that had deposited more than that with SVB. Some officials have said the federal government may come to their rescue, but the timetable on that is still uncertain.
Tech companies are having a difficult time, as Silicon Valley Bank has experienced a downfall and stocks have been significantly decreasing for months, resulting in large numbers of job losses. After years of rapid growth, things have slowed and become less stable — an apparent disconnect with the broader US economy. It remains to be seen how this collapse will affect the wider financial sector, but it is clear that hundreds of startups are now facing a cash crunch and payroll crisis.
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