Fallout in the Portland region from the collapse of Silicon Valley Bank sent founders and investors scrambling over the weekend for contingency plans ahead of a pivotal Monday when the extent of the damage may be better known.
On Sunday, federal regulators said they are taking actions to ensure all depositors are protected in the wake of SVB's failure and that funds will be available starting Monday. The move was hinted at by U.S. Treasury Secretary Janet Yellen earlier in the day, likely to calm people and avert more bank runs. In the Sunday joint statement from the FDIC, Treasury and Federal Reserve, it was also noted that New York-based Signature Bank was shut down by its state regulators.
Signature Bank depositors will be made whole as well, according to the statement. Additionally, the Fed is also making funding available to eligible institutions to ensure they can meet depositor needs.
"The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today's actions demonstrate our commitment to take the necessary steps to ensure that depositors' savings remain safe," the statement concluded.
Portland-area startups caught in SVB fallout
On Friday SVB was seized by regulators after a run on the bank that saw depositors try to pull $42 billion the day before. Among the local companies trying to get their money out was Vancouver-based Slumberkins.
The company, which employs 32 and has a line of children’s books and characters designed to help teach emotional wellness, had the majority of its capital and operations money in an SVB account, said co-founder and co-CEO Callie Christensen on Sunday.
“On Friday we were waiting for 5 p.m. to see if the money came through in a new account, and when it did not, it was a moment of pure: ‘I don’t know what this means and we don’t know what is going to happen,’” she said.
Christensen didn't say how much money Slumberkins had tied up in SVB but it is more than the FDIC insurance cap of $250,000. The company has raised about $17 million from investors over the last seven years. It had 2021 sales of $12.2 million.
Christensen and co-founder and co-CEO Kelly Oriard went into planning mode to try to figure out how to cover upcoming payroll and leaned onto their entrepreneurial ability for the quick pivot.
The company had a remaining account with IQ Credit Union, the financial institution they worked with when they launched the company. They connected their online business to that existing account and launched a sale this weekend to get cash in the door.
Christensen said the company was lucky that much of the capital it raised last year was tied up in inventory so they had product to sell. Plus, they had that existing account.
“When the money had not come through and we looked at ourselves and said, ‘OK this could be the end of Slumberkins.’ We don’t have money in the bank to make payroll. Some of our investors have their money in SVB. It felt like no one was coming to save us. We had to take action quickly to save ourselves,” she said.
So far, the call out to the community for help in the form of a weekend sale has been answered beyond their expectations, said Christensen, adding that she and Oriard are anxious about what will happen next.
“We’ve been told we will receive the insured funds Monday but we don’t know the extent we can get the remainder of the (uninsured) cash,” said Christensen. “Maybe half (this) week. It’s really unclear. We are trying to make quick, real-time decisions to protect the business.”
Portland-based children’s media startup A Kids Company About is in a similar situation. It also had a lot of its money tied up in SVB, said founder and CEO Jelani Memory, who noted that this sort of crisis is not something that can be anticipated.
“Our bank failing (had been) the least of our worries in running our startup. We never ever thought about it,” he said Sunday. “You think about competition and new products and runway and your team and layoffs and new hires. You never think about your bank failing.”
Like Slumberkins, A Kids Co. announced a sale over the weekend to try to get cash in the door.
“While we expect to have all of our funds available at some point, right now almost all of our cash is unavailable,” the company said in an Instagram post. “We love what we do and we want to get to keep doing it. So we’re asking for a little help.”
Memory was not able to pull his money before regulators seized the bank. He scrambled and set up a new bank account with online bank Mercury. The community has shown up with support, he said. He has also been in touch with his board, investors and his team of 6 to communicate what he knows in real time. He does have a plan for payroll.
“That is No. 1, everything else is No.2. (I have to) make sure the employees are taken care of and we make payroll on time,” he said.
A founder of a smaller Portland startup just starting out, who did not want to be identified, said one of his main operating accounts was at SVB. However, unlike larger companies he was below the $250,000 FDIC threshold.
“We need to see if the account and credit card works (Monday),” he said. “I am also an investor in a couple of local funds, which had significantly larger than $250,000 in SVB, so that is a bigger concern for me.”
Dr. Smriti Zaneveld, co-founder and president of Albany-based health care startup Lazarus 3D, another SVB customer, expressed gratitude to the community for support through the chaos. The company raised $6 million from investors last year.
“Despite the turmoil, we will be okay and I am confident that the recent SVB crisis will only make us stronger,” she wrote in a LinkedIn post. She also noted her appreciation for the Oregon SVB team, which has been “instrumental” in helping the company, which has 14 employees, grow and scale.
How investors are supporting startups post-SVB fail
Portland-based fintech Enduring Planet worked through the weekend to blunt the impact SVB’s failure has on climate-focused startups. Enduring Plant has a platform for climate entrepreneurs to access non-dilutive capital in order to grow their businesses.
Dimitry Gershenson had been working to set up a financial vehicle backed by impact capital providers — groups like family offices, philanthropic orgs and impact investors — to provide short term liquidity for founders of climate startups that banked with SVB. The plan is on hold for 24 to 48 hours to see how the the market reacts to regulators decisions to protect SVB depositors.
He put out a call on social media for such founders to indicate interest in such a fund. By Sunday he had more than 100 applications that represent more than $500 million of holdings at SVB.
Portland investor Elevate Capital said only a handful of its portfolio companies banked with SVB. Those that did already have or are working out contingency plans to make payroll, said Managing Partner Nitin Rai.
Portland Seed Fund has been working with its portfolio companies on tactical advice and offering community compassion through what is still a very dynamic situation. The group has 75 active portfolio companies across four funds. Only a subset banked with SVB.
“Nearly all companies with SVB exposure had moved swiftly to divert accounts receivable, halt accounts payable, and establish accounts at new banks virtually overnight,” said PSF Managing Director Angela Jackson on Sunday. “With a hundreds-strong peer-to-peer founders network, Portland Seed Fund's unique value is to activate that trust network quickly to share critical information with one another in a rapidly-changing environment, similar to what happened at the onset of the pandemic.”
Monday and the outcome of any regulator action this weekend will be critical, she said.
“At this point we are thinking beyond our companies to the broader impacts of SVB's sudden demise, especially to those front line staff at SVB Oregon, who have been great partners and ecosystem champions for decades,” she said. “Our hearts are with them.”
