Friday March 10, Mike Wheeler, chief legal officer of payroll startup Patriot Software, was on a five-day cruise off the coast of Florida to celebrate his brother’s wedding. That morning, as he headed out to the beach for a short stop in Key West, his cell service was back on and he received a text from the company’s former bank representative: “Are you ready to withdraw some dollars from Silicon Valley Bank??? 😳
Wheeler replied with a question mark. Overnight, his company had to send cooks, librarians and 46,000 other American workers through Silicon Valley Bank, or SVB, to cook nearly $40 million in paychecks. The banker sent a screengrab of a stock chart showing SVB’s shares had fallen nearly 90 percent. SVB was on the brink of collapse – and Wheeler stuck on board – unaware of the crisis on dry land.
Late Wednesday, SVB, known for its startup-friendly loans and lavish wine parties, announced it would raise more cash after losing $1.8 billion in low-interest bonds. The news followed weeks of speculation about the bank’s health after its chief executive cut short a conference call aimed at allaying customer concerns. SVB customers tried to withdraw $42 billion a day before Wheeler received the confusing text message, regulators say, the largest bank in U.S. history. The startup industry closed the day with $958 million in cash to the bank. Wheeler soon learns that things have only gotten worse since then.
Friday March 10
As Wheeler followed the news in Key West, he learned that SVB’s problems not only affected Patriot in Canton, Ohio, but also the nearly 57,000 businesses that calculate and pay payroll and payroll taxes. SVB will keep those funds hidden for days before sending them to workers at 12:01 on Friday. The chaos created by SVB broke that system, Wheeler found himself drawing on delayed text messages. No one was paid – not even the veteran frontline staff.
That’s when Ali Egan, founder and CEO of Veracity Self Care in New York, experienced a 24-hour panic attack. Venture capital firms including Andreessen Horowitz and Peter Thiel’s Founders Fund have been advising their portfolio companies to divest from SVB, and Egan’s investors joined the chorus of bank moves on Thursday. But Veracity’s seed funding agreement stipulates that the money must stay in the bank.
Egan held off on moving money—for now. But she was still concerned. “I was really afraid we’d lose everything but the minimum,” he said, referring to the $250,000 in one account insured by the U.S. Federal Deposit Insurance Corporation, or FDIC. That only covers two months’ salary. “As a founder, a lot of investors will message you and say, ‘What’s your plan? What’s your plan?’ And ‘I don’t know. I really can’t plan.’
Taryn Aronson, CFO of Chicago-based smartphone and food delivery company Tovala, tried to get the company’s money out of SVB. But on Friday, she woke up to the unwelcome news that the transfers had failed. Just as Patriot Salary had placed 8,100 customers that day, the money was stuck. Tovala began to create a very bad situation to extend the remaining capital for two months. “It was a global crisis,” said David Raby, Tovala’s founder and CEO.
On Friday morning, with the cruise ship still temporarily docked in Key West, the patriotic Wheeler left his family at the Butterfly Reserve while heading to Ohio with his colleagues for the Zoom War. Tried to resend failed payroll transfers to no avail. At 11:56 Eastern, SVB just sent out an email. Government press release Stating that the FedDC is taking. An SVB representative agrees to join the call of the veterans’ war department and the news that no customer wants to hear: the worst-case scenario has come true and the bank has failed.
Some employees at SVB thought their jobs were gone and that the bank was dead. “The whole communication was in a wind-down mode,” said one department official, who asked not to be identified because he was not authorized to speak to the media. SVB and the FDIC declined to comment for this story.