The rumors started to swirl on Thursday. Oriana Papin-Zoghbi, co-founder of AOA Dx Inc., started to hear talk from other founders she couldn’t quite believe: “There’s risk at SVB, there’s risk at SVB.” Meanwhile, SVB Financial Group CEO Greg Becker told clients of Silicon Valley Bank to stay calm amid concerns about the bank’s financial situation.
Papin-Zoghbi got mixed feedback from investors and community members on Thursday. Some told her there was no way there would be a run on the bank. Others told her to get her money out. Her Boston-based women’s health startup banked exclusively with SVB. As a precaution, on Thursday Papin-Zoghbi began opening another bank account. But that process usually takes days, not hours.
Less than 24 hours later, the window to pull funds from Silicon Valley Bank closed. The bank was shut down by regulators at midday Friday. The second largest bank failure in history kicked off several days of panic among Boston-area tech and life sciences startup founders — many of whom banked exclusively with SVB — as they made last-minute plans to pay their employees and bills.
‘I am permanently scarred’
After it became clear that setting up a new bank account wouldn’t happen Thursday, the thought crossed Papin-Zoghbi’s mind to move the company’s capital into her personal account before things with SVB worsened. But the general consensus was still that SVB was solid. It wouldn’t collapse. So she held off and planned to open an account on Friday.
Even while working with four different bankers, Papin-Zoghbi was not able to get another account open on Friday. Instead she called her investors and agreed to a custodian agreement so she could wire them the money while continuing to set up a new bank account for payroll payments this week. After several attempts, someone from her team logged onto the overloaded SVB portal, initiated the wire and — nothing. It was stuck in processing.
“And then the news hits that the bank collapsed entirely,” Papin-Zoghbi said.
For most of the weekend, founders were only guaranteed the $250,000 insured by the Federal Deposit Insurance Crop.
“Literally all night (I was) canceling subscriptions, canceling our coworking space, anything that was automatically linked to our account, so nothing would withdraw out of that 250 other than being able to make payroll,” Papin-Zoghbi said.
Papin-Zoghbi was ready to forgo her own salary. But she didn’t want to let down her employees and the small businesses who are the consultants and suppliers to her company, which is working on a blood test to detect certain cancers earlier.
“This is not the 1%. This is not rich CEOs or investors, VCs or bankers. These are everyday working Americans that would have been most impacted,” Papin-Zoghbi.
Papin-Zoghbi said her investors offered to wire her funds. But on Sunday night, the federal government stepped in and promised SVB customers that they’d be able to access their entire deposits on Monday morning.
Despite the reassurances from the federal government, Papin-Zoghbi said she won’t forget this experience anytime soon.
“I am permanently scarred from this,” Papin-Zoghbi said. “My world has been disrupted … Friday was, I think, the worst day I’ve ever lived on this planet.”
“There is no such thing as going back to life before this. Now it’s like you’re on edge to understand where in every element of the universe do you have risk.”
Papin-Zoghbi was able to open an account with Bank of America and is in the process of transferring the startup’s capital to the banking giant.
“Long term, we’re moving everything over, and we’re probably going to diversify across four different institutions,” Papin-Zoghbi said.
An accidental backup plan
Like it was for many startups, SVB was the primary bank of Goldcast, a digital events company. CEO and co-founder Palash Soni said Goldcast had been connected with the bank through Boston law firm WilmerHale, when the firm helped the company incorporate.
Soni said the company kept around $9 million in cash with SVB to fund Goldcast for more than a year. Goldcast had also taken a unique step — one that would ease some of its worries during the crisis. Several months ago, the Boston company put a large portion of its capital in Treasury bills, as a way to earn some interest. Even though Goldcast could not move its money out of SVB before the bank shut down, Soni was not concerned about making payroll payments this week.
“We knew we could liquidate those Treasury bills and make payroll in time, but the thought that there could be a situation that we could not recover this money, that was very stressful,” Soni said.
Soni said Goldcast was planning on signing a venture debt deal with JP Morgan, so it went ahead and set up a new bank account with the institution.
Going forward, the company plans to have at least two bank accounts holding a smaller amount of liquid cash and “put as much money as we can in Treasury bills.”
“We still kept a big amount in cash, which is, now, in hindsight, not a good decision,” Soni said.
‘Investors are skittish’
Sublime Systems was founded exactly three years ago today. From the start, co-founder and CEO Leah Ellis said the startup, which is commercializing a process to make low-carbon cement, had banked with SVB.
“We didn’t shop around. SVB was like the go-to bank for startups,” she said.
When the rumors started circulating on Thursday, Ellis was among the lucky few to be able to quickly open a bank account at another bank that day and transfer some funds. She declined to say which bank she went to, but said it was the bank that advertised the fastest application process.
Ellis said she was still making a plan for Sublime's finances, but said she plans to diversify the company’s bank accounts. She’d like to stay with SVB because of her positive experiences with the bank, but there is still so much uncertainty about the bank’s future.
Ellis said this experience also taught her about the importance of communication. SVB’s move last week to raise capital spooked investors and depositors, causing many to pull their funds. The bank did not get ahead of the fast-spreading news and adequately assuage concerns.
“Communications to your board, communications to your team, external communications, and just thinking around the corner to how people might react. And thinking about how if we are a publicly traded company, how might we plan communications better so that investors don’t get triggered like that,” Ellis said.
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