The startup world has never been a warm, fuzzy place for underperformers. Businesses spend all their money, fail to show hoped-for traction, and fail.
Sometimes it happens noisily. Sometimes it happens quietly. Either way, it happens very regularly. Most seed-funded companies won’t graduate to Series A.
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That’s as it should be. No one ever said launching a transformative company would be easy or result in success.
But of all the risks startup founders face, one thing previously assumed was that at least you’d be able to spend the money you did have. And since founders aren’t in the habit of stuffing pillowcases with wads of cash, you could access your money through a bank.
While the bank about half of funded U.S. startups chose — Silicon Valley Bank — failed to appropriately hedge for the combination of higher-interest rates and increased withdrawals, it’s errant to blame this misstep on depositors. They weren’t involved in the financial planning, and, like most of us, base decisions on where to put their money on an institution’s reputation, track record, service, and product offerings.
Pointing the finger at SVB makes more sense. The bank wasn’t well positioned for changing market circumstances and put out an opaque and poorly timed press release about plans to shore up finances that then precipitated a bank run. California regulators closed the bank on Friday and appointed the Federal Deposit Insurance Corp. as receiver. The move effectively wiped out shareholder equity in the company.
Fortunately, depositors won’t be eating losses. Early today, the regulator announced that it had transferred all deposits —both insured and uninsured — and substantially all assets of the former SVB to a newly created bridge bank, Silicon Valley Bridge Bank, N.A.
Depositors will have full access to their money beginning this morning, when the bridge bank opens, including online banking. Depositors and borrowers will automatically become customers of Silicon Valley Bridge Bank, N.A. and will have access to their funds by ATM, debit cards and writing checks in the same manner as before, per the FDIC.
Of course, this move won’t fill the hole in the startup and venture capital spheres that comes from losing its most well-known and enduring banking partner. But as everyone in this space is keenly aware, failures do happen.
With access to deposits, we’ll hopefully ward off what loomed as some of the most damaging potential ripple effects of SVB’s closure. Employees can still get paid. Founders can keep the lights on. And startups, once again, will be free to fail or succeed on their own merits.
Clarification: This story has been updated to reflect the full name of the newly created bridge bank, Silicon Valley Bridge Bank, N.A.
Illustration: Dom Guzman
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