Startups requested assistance with their payroll following SVB, but responses from venture capitalists were varied.
After the loss of SVB, founders were struggling to come up with funds for paying their employees and many venture capital firms offered their assistance. However, only a few followed through and provided them with the financial support they needed.
Few VCs Followed Through on Promises to Help Struggling Founders
Following Silicon Valley Bank's sudden closure on Monday morning, Sam Altman, President of Y Combinator, addressed the pressing question on the minds of tech entrepreneurs and venture capitalists: How would they cover payroll for their employees the following week? In a statement to the public, Altman said that he had been working with banks, credit unions, and funders to ensure that the financial challenges caused by the closure of SVB are quickly and successfully addressed. He reassured affected members of the tech community that Y Combinator was actively exploring solutions in order to help provide financial stability in the midst of the crisis.
"Loans, Equity and Wires: The SVB Aftermath"
In a surprising turn of events, Geltor, the Silicon Valley based startup, found itself in a difficult financial situation after its payroll funds were tied up at SVB, with a transfer attempt to Mercury still pending. With its employees expecting to go unpaid, Geltor was rescued after help came from unexpected places: a fellow founder with some cash to spare, as well as Fifty Years, a smaller firm with a $90 million fund. However, the wired loans to transmit on Monday were blocked as potential fraud. Fortunately, Ela Madej, founding partner of Fifty Years, went above and beyond to help Geltor out. Madej connected her own personal bank account to Geltor’s payroll system and paid out the company’s employees herself. This display of generosity and dedication to the startup community showcases Madej and Fifty Years’ commitment to their fellow founders.
A beacon of hope in the dark days of the pandemic, venture capital firm Khosla Ventures has taken a stand in support of their founders.
On Monday, Small Business Administration (SBA) loan recipients had a mix of experiences when navigating the SVB website. While some struggled to send out a loan, a few larger firms were successful in their attempts. According to Forbes, Kleiner Perkins was able to repay their loan within a day, and Menlo Ventures also sent out a loan, though the timeline for a return is still to be determined. The SBA loan program has been a lifeline for countless small businesses, and many are hopeful that the process of sending and receiving these loans will become more streamlined in the near future.
USV, a venture capital firm, recently made an offer that was ultimately unused to help its founders and partners during a time of financial hardship. Rebecca Kaden, a partner at USV, spoke with Forbes to explain the situation. "We kept in close touch with our companies through Monday morning as the pipes started working again to make sure they all met payroll from their own accounts, which they did," Kaden said. Despite the offer, each of USV's partners managed to meet payroll on their own - a testament to the resilience of their businesses.
“From talking to other founders, I don’t think many VCs were able to do anything that helpful this weekend.”
Founders Fund, led by controversial Silicon Valley investor Peter Thiel, has come under increased public scrutiny in recent weeks. The firm has been accused of fueling a bank run, but Thiel himself has denied such accusations, claiming he left $50 million of his own personal funds with SVB over the weekend as a sign of confidence. Now, however, multiple peers have expressed disappointment in the firm's response to the weekend's events. It remains to be seen how Founders Fund will respond to the criticism and what impact this may have on their future.
"Crisis Averted, Bluffs Uncalled"
Venture capital firms were relieved this week after the Federal Deposit Insurance Corporation's decision to guarantee deposits on Sunday, which prevented a potential bank run and potential crisis. The decision came just in time to avert a potential crucible moment— had the bank runs extended to other banking partners, VC firms would have faced the prospect of dozens, if not hundreds, of companies in need of business interruption aid, with company founders and board directors being held personally responsible for employee pay. Michael Goldstein, finance professor at Babson College, commented on the decision, saying, "I don't think it was just virtue signaling. Within the confines of the law, you'd be limiting the damage on a temporary basis and moving on." He went on to praise the FDIC for their timely decision to guarantee deposits, averting a potentially devastating economic crisis.
Amid the coronavirus pandemic, many venture capital firms have expressed an eagerness to help small businesses. However, some founders have questioned whether these offers are sincere, as they believe that the government's response will make any assistance moot. As one anonymous tech CEO explains, “From talking to other founders, I don’t think many VCs were able to do anything that helpful this weekend. Even the best-hearted ones were spread thin over just how many companies were affected. So it was really left to founders to rally their resources and pull support from wherever they could.” It appears that many small businesses are taking matters into their own hands, as they lack confidence in the ability of venture capital firms to provide the much-needed relief. With no guarantee of government aid, the future of these companies is uncertain.
In response to the economic crisis brought about by the coronavirus pandemic, investors have stepped up and provided assistance to those in need. Some investors, especially fund managers who do not have the financial means to provide assistance themselves, have instead focused on providing the most up-to-date information on the government's response and alternative loan sources, such as Brex’s weekend emergency fund. This is an important step forward in ensuring that those affected are able to access the help they need during this difficult time.