The tech industry avoided an ‘extinction-level event’, but it’s not unscathed | CNN Business

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For much of the weekend, Silicon Valley struggled to find a way out of what one prominent tech investor described as an “extinction-level event for startups” after the collapse of yet another lender important in the sector.

Startups raced to line up loans risk fund and fintech companies to make payroll. Corporate-backed retailers hosted last-minute sales to boost their cash reserves. And at least one prominent startup accelerator convinced thousands of CEOs and founders to sign an “urgent” petition calling for “relief” from Treasury Secretary Janet Yellen and others.

Then on Sunday afternoon, federal officials stepped in to ensure that all customers of the failed Silicon Valley Bank would have access to their full deposits on Monday. The sense of relief was palpable throughout the tech sector.

“Obviously, I’m pretty relieved,” said Stefan Kalb, co-founder and CEO of Seattle startup Shelf Engine, who told CNN his company would have had to shut down by the end of the week without government intervention. “It’s been a very stressful weekend and I’m quite relieved to hear the news.”

Parker Conrad, the chief executive of HR platform Rippling, who previously said some clients’ payroll was being delayed by the bank’s failure, tweeted on Sunday: “Someone else is breathing a sigh of relief and looking forward to a good night of are you tonight?”

And Garry Tan, the CEO of tech startup accelerator Y Combinator, which authored the petition to Yellen, praised the federal government for “decisive action.” Tan, the investor who previously warned of “an *extinction-level event* for startups” that would “set back startups and innovation by 10 years or more,” added on Sunday his thanks for “everyone who helped us through a very intense process. time.”

But while the tech industry is enjoying a breather after a scary weekend, the unknowns remain. “You can hear the collective *sigh*,” Ryan Hoover, founder and tech investor he wrote Sunday on Twitter. “I’m still nervous,” he added. “Hard to predict side effects.”

It is unclear how the aftershocks of the bank collapse will add to the startup industry’s growing challenges in accessing capital. SVB’s collapse also risks changing the way the world and potential recruits think of Silicon Valley.

For years, the term itself conjured up an image of an enclave of brilliant, contrarian, libertarian engineers and thinkers who could see around corners and make big bets on the future. Now, that same industry depends on the federal government to survive after failing to see the risk, or worse, contributing to it through shared hysteria.

In the chaotic days leading up to the bank’s collapse on Friday, some venture firms urged their portfolio companies to withdraw their money, which may have contributed to the bank’s failure.

Then, over the weekend, many venture capitalists and tech founders came together to try to pressure the government and public goodwill to save the companies affected by the sudden collapse of Silicon Valley Bank.

While some VCs seemed to embrace the fear on Twitter, much of the public messaging focused on small businesses with exposure to Silicon Valley Bank that may not be able to continue operating after losing access to money in their bank account.

“We are not asking for a bailout for the bank’s shareholders or its management; we ask you to spare innovation in the American economy,” Y Combinator’s petition read. “We ask for relief and attention to an immediate critical impact on small businesses, startups and their employees who are bank depositors.”

A separate coalition of more than a dozen venture capital firms, including Lightspeed Venture Partners and Upfront Ventures, issued a joint statement Friday afternoon supporting Silicon Valley Bank, given its unique and vital role in the startup economy. The bank worked with nearly half of all technology and healthcare companies in the United States.

“For forty years, it has been an important platform that has played a critical role in serving the startup community and supporting America’s innovation economy,” the statement said. “In the event that SVB were to be purchased and properly capitalized, we would be very supportive and encourage our portfolio companies to resume their banking relationship with them.”

Even before the bank’s collapse, the startup industry was in dire straits. Venture capital funding had shrunk amid rising interest rates and broader macroeconomic uncertainty; tech companies were cutting staff and ambitious projects; and some of the largest private companies were cutting their valuations.

The instability of a top technology lender and lingering questions about its impact on other regional banks and the broader financial system risk making it even harder for money-losing startups to access the capital they need to survive.

President Joe Biden stressed in remarks Monday that “taxpayers will not bear losses” related to government intervention for Silicon Valley Bank. But some are already skeptical of that claim, including Democratic Sen. Elizabeth Warren of Massachusetts, who wrote in an op-ed Monday morning: “We’ll see if that’s true.”

More immediately, there is uncertainty about how long it will take companies to get their money out of the bank.

As of Monday, Kalb said the money from his Silicon Valley bank account had not yet been transferred to the new JPMorgan Chase account he set up Thursday for Shelf Engine. “I’ve been obsessively checking my email,” he said. “We hope the money can be transferred soon.”

Ben Kaufman, the co-founder of toy store and online retailer Camp, told CNN’s Poppy Harlow in an interview Monday morning that he and his team spent the weekend trying to “fight for survival,” including the celebration of a last minute 40. % off sale, using code “BANKRUN”, to raise capital over the weekend.

“We didn’t know how long it would take to get our cash out … we’re not doing it yet, they say today, we’ll see what happens,” he said, noting that the bank held 85 percent of his company’s equity. “We hope we can, and we’re very grateful that the Fed stepped in and how it did.”

Asked if the events of the past week would change how and where he stores his money, Kaufman said that “will have to be a consideration moving forward.”

“I don’t want to do this again,” he said.