Carpool Logistics CEO Michael Malakhov was about to open an account at Silicon Valley Bank before its collapse.
He already had an account with Mercury Bank, a financial technology company that partners with banks and specializes in the startup sector. But SVB offered more products to help grow his logistics startup, which connects vehicle shippers with auto haulers that have available space on their trucks.
SVB would still provide credit lines and venture debt to startups that were losing money, understanding the growth pattern of early technology companies, said Malakhov.
But before Malakhov closed the deal, regulators took over SVB earlier this month. U.S. officials said all deposits will be protected, but the collapse sent shockwaves through the startup sector.
As many as 40% of Atlanta startups banked with SVB and may have been affected by the collapse, estimated John Yates, a prolific local technology attorney.
Malakhov doesn’t know which bank he will turn to next. He expects that Carpool Logistics and other startups might have to raise more equity instead of adding venture debt to the mix, which is more expensive in the long run. That could lead to more belt-tightening for startups that are already low on cash.
“When you add venture debt, it's an opportunity for a [startup] to put more capital to work, knowing that they're going to pay that back,” said Steve Hasty, partner at Atlanta investment firm Circadian Ventures. “It gives [companies] a longer runway.”
Plus, venture capital funding is already down because of investors’ hesitancy amid economic uncertainty.
Georgia companies raised half the amount of venture capital in 2022 as the year prior. Before the collapse of SVB, capital research firm PitchBook had already predicted another slow year for venture capital.
One solution could be private debt funds, said Martin Tilson, chairman of Southeast Investor Group. He said venture capitalists are actively helping their portfolio companies look for alternative sources of capital. Hasty said he expects the private credit market and non-bank lenders will fill the void.
“The difference in the near-term is that the banks aren’t going to have the startup-focused products that were available through SVB," Hasty said. "It might take some time for them to develop the level of service that companies receive.”
Malakhov expects another six months or a year of constricted capital access, both for debt and equity. Carpool Logistics currently has $2 million in equity investments and 26 employees.
“I hope somebody steps into [SVB’s] shoes quickly … Startups drive innovation, and a support system is required to be successful,” Malakhov said.
