Startups worry about employee payouts after SVB collapse

(Bloomberg) — Startup founders are starting to worry about whether they can continue to pay employees after Silicon Valley Bank fails.

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On Friday, payroll service provider Rippling notified customers that some transactions were on hold due to SVB helping process payments. The company, itself a start-up, switched to JPMorgan Chase, but not fast enough: paychecks were already in flight with SVB and not paid yet – and the firm is still trying to figure out what the bank crash on Friday would mean. for them,” Rippling CEO Parker Conrad said in a Twitter post.

Startup founder Brad Hargreaves said some firms may not get paid next week. And because boards are extremely sensitive to hiring workers they can’t pay, he said, “Expect massive layoffs later today, Monday at the latest.”

Sarika Bajaj, CEO of early-stage startup Refiberd, said she was a client of Silicon Valley Bank for three years and held most of the company’s funds there. Bajaj, who was at the Sand Hill Road SVB branch in California on Friday, tried to withdraw the money but was unable to, and is increasingly concerned about wages for her and two of her team members.

“I’m sure there are a lot of people here and a lot of employees,” she said. “This is not our reality, but I know it will be the reality of many people.”

More than half of tech companies “hold the lion’s share of their cash in SVB,” said Greg Martin, founding partner at investment firm Liquid Stock. “They all need to get paid early next week.”

Martin said he thinks the bank is healthier than people think. But in the worst case scenario, he said, “tens of thousands of people” won’t get paid next week.

Some venture capitalists have rushed to help raise temporary cash funds to help affected startups get paid next week. Spark Capital on Friday referred portfolio companies in need of assistance to Liquidity Capital MC Ltd., which offers startup funding and said on LinkedIn that it will provide capital to those affected by the Silicon Valley Bank bankruptcy within 24 hours, a person familiar with the case said. Liquidity Capital is one of the portfolio companies of Spark.

Executives from some of the companies whose funds are trapped in Silicon Valley Bank are planning to use their personal fortunes to pay salaries to their employees amid wage restrictions caused by the bank’s failure, according to a person familiar with the matter.

Read more: Peter Thiel Founders Fund Withdraws Millions from Silicon Valley Bank

At least one startup was planning Friday layoffs, but the Silicon Valley bank situation thwarted those plans because, according to a person with knowledge of the matter, the business that was being serviced by SVB no longer had the capital to pay the severance pay.

Conversely, other startups have considered layoffs because of the SVB situation because it’s illegal to have employees without pay, the person said. Layoffs were also seen as a potential way to get employees back into the payroll once funds were received. Startups are frantically discussing their options with lawyers, the source said.

On Friday, it became clear that the consequences of a bank failure for the startup ecosystem could be serious. In an interview with Bloomberg Television, former Treasury Secretary Larry Summers warned of “significant consequences for Silicon Valley – and for the economy of the entire venture capital sector” if the government does not intervene.

On Friday morning, the SVB office on the famous Sand Hill Road in Silicon Valley was technically closed. Yet a constant stream of customers, many of them founders of start-ups that had placed most of their company’s funds in SVB, knocked on the bank’s locked glass doors and waited patiently for someone to come. From time to time a representative of the Federal Deposit Insurance Corporation came out of the office and talked with clients alone, either in small groups or one on one.

Many customers were clearly disappointed. One woman, the founder of a drone startup, said the withdrawal she made on Thursday still hasn’t gone through and that she’s worried about paying the salaries of her 12 full-time employees. She tried several times to call the FDIC.

“The number is not answering,” she said.

(Updates with details of the founders’ response, starting with the ninth paragraph.)

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