With SVB locked up, how are startups going to pay for stuff?

TechCrunch is currently busy reporting the hell out of the SVB crisis, but as we sort out the competitive landscape and learn more about how founders and their VC partners are reacting, I have a question: How are startups going to pay for stuff while the mess is sorted out?

According to the government, “insured depositors” at SVB “will have full access to their insured deposits no later than Monday morning.” That’s good, as it appears some capital will be available to some of SVB’s customers in short order. The issue is that the FDIC insures a maximum of only $250,000 for every account.

Sure, to the average person that is a lot of money. For a startup that needs to make payroll, it is not.

And payroll is just one expense. What about paying cloud providers? Software vendors? Partners? Handling refunds for services and products? Any sort of cash use is now going to be nigh impossible for startups that had a material percentage of their capital at SVB.

From what I hear, there are venture debt options coming from providers like Brex, but we're going to need *a lot* of options in order to avoid a mass shutdown of all American startups in the next few weeks.

— Garry Tan (@garrytan) March 10, 2023

Worse, some startups are likely wondering if their prior lead investors are liquid themselves. If your last few lead checks also had their cash at SVB and can’t quickly call in more capital, can they even extend you a bridge? Be it a bridge loan or a check at the startup’s last valuation, no cash means no capital to disburse. There may be no cavalry coming.

A good number of startups have been sitting on huge sums of money raised late in the last startup boom. They were depending on that money to get them through the current downturn. What happens to those companies if they banked at SVB and don’t have that capital available to them? The later stage the startup, the greater its cash needs likely are, and the harder they will be to bridge with straight-up cash.

Some of these cash-rich unicorns are also very upside-down when it comes to their valuations. Precisely who is going to offer them cash at a price on par with their prior round? Probably no one.

Now they may not be able to make payroll next week. Unpaid wages pierce the corporate veil, so boards are *incredibly* sensitive to employing workers they may not be able to pay.

Expect mass layoffs later today, Monday at latest.

— Brad Hargreaves (@bhargreaves) March 10, 2023

Not that the news is better for smaller startups. Per commentary I am receiving and reading pretty much live from venture players and founders, startups that already had thin cash balances are going to be in deep trouble if what’s left of their funds were at SVB. Who wants to bridge a startup that was a marginal investment pre-crisis and is now even more wounded?

Who is safe? Startups that had their capital elsewhere, I suppose. The issue here is that Silicon Valley Bank was aptly named, and Silicon Valley is still synonymous with startups and venture for a reason.

Perhaps cloud providers, software companies and the like can offer long grace periods to customers while they sort all this out. They will need to move fast to build confidence.

Things are tougher on the payroll side. I doubt many startups can make full payroll for a two-week period on $250,000. We may see vultures descending — be they individuals or institutions — offering expensive capital as a “last resort.”

It’s a mess right now. This crisis is going to kill a host of startups, either quickly or by simply adding enough operational friction to bring them to their knees.

More food for thought: How do you sell products to companies that can’t access funds? Startups that sell to other startups might have just seen their pipeline evaporate and their receivables being stretched out to the horizon. Both will engender a need for more cash. Cash that many will find very hard to reach.