When Punit Singh Soni founded Suki in 2017, Silicon Valley Bank seemed like the natural place to put his company's money. Many other tech companies were clients, and the bank was viewed in many ways as the "default" for startups to use, Soni said.
"To be honest, when you're an entrepreneur, you don't want to be thinking about banking. You want it to work," he said. "And I think that there are very few places who understand entrepreneurs the way SVB does."
Little did he know that roughly five years later, that "default" bank would collapse and be taken over by state and federal regulators. That's been the shocking reality many in the local tech industry have dealt with over the past week, after a bank run prompted the country's 16th largest bank to become insolvent. It was the second largest bank failure in U.S. history.
On Friday, March 10, government regulators stepped in to take control of the bank and told customers that they could get their access on Monday to their deposits up to the $250,000 cap that the Federal Deposit Insurance Corporation (FDIC) insures.
What wasn't clear until Sunday, when the FDIC announced that it would guarantee the full amount of all deposits, is what would happen to all the money over the quarter million dollar limit.
Over the past few years, Suki — an artificial intelligence company based in Redwood City that's created a voice assistant for doctors — has raised roughly $100 million and used Silicon Valley Bank for its main operating account, Soni said. He opted to work with one bank because of the simplicity it provided.
"Who goes through a bank run, ever? Those are the things you read about in books," Soni said.
Soni wasn't the only one left scrambling in the days following the bank's collapse.
On Monday, Wilbur Properties, a real estate and property management company that manages more than 200 Bay Area properties, including tech sites, sent out a letter to its tenants notifying them that all online payments via Silicon Valley Bank were on hold until Wilbur Properties could set up accounts with a new bank. Wilbur Properties was unavailable for comment for this article.
Garry Tan, CEO and president of of Y Combinator — a Mountain View-based accelerator for tech startups that has been used to launch more than 4,000 companies, including Airbnb, DoorDash, Reddit and Instacart — circulated a petition on Twitter the day after the collapse, asking the government to intervene swiftly to save startups whose sole bank accounts, like Suki's, were with SVB.
In the Y Combinator community, "one-third of startups with exposure to SVB, used the bank as their sole bank account," Tan tweeted. He estimated that more than 10,000 small businesses and startups could be at risk of payroll-related furloughs or shutdown, which would affect more than 100,000 jobs.
"The real victims of the SVB fallout are the depositors: startups (10 to 100 employees) who cannot make payroll, and will have to shut down or furlough next week," he tweeted prior to the FDIC's announcement that it would guarantee the full amount of all deposits. "If these startups wait weeks/months for their deposits, we have destroyed a generation of US startups, at random."
Tan wrote in Y Combinator's petition that these companies wouldn't have the money to pay their employees in the next month.
"Silicon Valley Bank's failure has a real risk of systemic contagion. Its collapse has already instilled fear among founders and management teams to look for safer havens for their remaining cash, which can trigger a bank run on every other smaller bank," he tweeted.
Soni said when the bank collapse first happened, his top priority was to make sure that his company could make payroll on time. As investors started to urge companies to take their money out of the bank in the days leading up to the bank failure, Soni said he felt they were "seeding panic" and that he tried not to overreact, opting to leave Suki's money at Silicon Valley Bank.
The problem was that the panic created a situation in which those who stayed calm and left their money in the bank ended up getting put in a tougher spot, Soni said.
Through a combination of his own funds and money that investors put up, Soni said that the company got a plan in place to make sure employees got paid.
"I can't tell you with a straight face that that was just easy," Soni said. "Those two days were pretty nerve wracking."
Reflecting on the crisis, Soni said that he believes that, while this was a failure of Silicon Valley Bank's executives, he also feels that Silicon Valley leaders failed to keep calm and communicate clearly. Instead, the panic created a situation in which depositors raced to pull out their money, precipitating the collapse.
"I feel this was a classic moment where we should have shown more leadership," Soni said. "First of all, we should trust the government. They will do the right thing."
Soni noted that the government has an incentive to ensure confidence in the banking system. Throughout the last week, he felt it would be a matter of when, not if, Suki would be able to access its funds.
To protect itself in the future, Suki is looking at how to diversify its finances through use of multiple banks, Soni said. But as of Tuesday, its funds remained at Silicon Valley Bank, and Soni said he was considering continuing to use the bank.
Angela Hey, a Portola Valley technology consultant, said that any institution that uses a bank should be wise to the risks.
"People are jolly lucky that the government is bailing people out, as it would be more catastrophic otherwise," Hey said. "There will be ripples from the loss of SVB stock for those who held it.
"It is a lesson for businesses to diversify their holdings, particularly small businesses. Any business, nonprofit, church, school or other institution with more than $250,000 in any bank would do well to split their holdings to ensure they are covered by FDIC insurance if there is a run on their bank," she said. "As we can see, this can happen very quickly and assets can vanish in an instant if even as much as a rumor of bank instability goes viral. A malevolent tweet, blog or video has the power to destabilize trust in a financial institution."