Sunny Han, founder and CEO of Fulcrum, had heard rumblings the day prior to the seizure of Silicon Valley Bank, but was unable to get his manufacturing-software startup's money out before the bank swiftly collapsed last week.
On Friday, March 10, all of the Minneapolis-based company’s funds were stuck in the Santa Clara, Calif.-based bank, a financial institution heavily tied to the startup and venture capital ecosystem in the U.S.
Silicon Valley Bank hasn't had a physical presence in Twin Cities for years, but SVB has remained entwined locally with a number of Minnesota companies having significant pots of money in the now-seized bank.
Han went into problem-solving mode; he needed to find a way to make the company’s upcoming payroll. While Han didn’t provide specifics on the amount of funds the company had in the bank, Fulcrum has raised nearly $22 million since 2020, according to prior Business Journal reporting.
“For me, it’s just what can we do?” he said.
Liz Giorgi, CEO and co-founder of another Minneapolis-based startup, Soona, also had all of the company's funds tied up in SVB. When she heard rumors on Thursday of concerns with SVB, she also attempted to wire out the startup’s funds — which totaled well-over $20 million — to no avail, she said.
Giorgi’s immediate concerns were paying employees and vendors of the same-day photo firm, and that "we can’t operate our business as usual,” she recalled.
SVB’s collapse was the second-biggest bank failure in U.S. history. The Federal Deposit Insurance Corp. (FDIC) created the Deposit Insurance National Bank of Santa Clara as receiver.
At the time of the collapse, insured depositors were informed they would be able to access up to $250,000 in insured deposits by Monday morning. However, when and if they would get back the rest of their funds remained unknown until Sunday, when Secretary of the Treasury Janet Yellen, Federal Reserve Board Chair Jerome Powell, and FDIC Chairman Martin Gruenberg announced that all deposits would be guaranteed and accessible by Monday.
The announcement provided relief, "but the 72 hours that preceded that were some of the most stressful in my leadership career,” Giorgi said. Now, the company will need to reset its banking process, she said.
Niron Magnetics Inc., a Minneapolis-based manufacturer of magnets free of rare earth metals, was also happy to hear Sunday's announcement, as a majority of the company's funds were in SVB, which totaled multimillions of dollars, CEO Jonathan Rowntree said in an interview. The company had worried that a lack of funds, then-frozen, would have slowed down the company's ability to progress in its projects with the federal government.
Venture firms react to collapse
During the period of uncertainty, local venture capital firms were also scrambling to figure out what the collapse could mean for their portfolio companies. That included Matchstick Ventures, which had a “significant chunk” of its portfolio companies with funds in the bank, said Founder and Partner Ryan Broshar.
“It's been a very frantic weekend,” Broshar said. “We've been working with our portfolio companies basically nonstop since Thursday.”
Had Sunday's announcement not come through, “it would have been even scarier [on Monday],” he added. “… The relief was definitely felt.”
Broshar did not disclose the number of Minnesota-based companies in its portfolio that were affected, but he did say it was enough to make the firm worried.
At Groove Capital, a pre-seed investment firm that largely is invested in Minnesota-based companies, about 10% of its portfolio was impacted, which is likely much lower than other markets more heavily tied to the Bay Area, said Founder and Partner Reed Robinson. “You might think that this was a Bay Area problem, but it absolutely was not."
The collapse also prompted indirect impacts, like changes to the way business is run to protect against such risks, Robinson said, adding that it will be a memorable day for those in the startup ecosystem.
Bread & Butter Ventures are recommending to startups that they diversify their funds by using at least two financial institutions, according to a statement provided by Managing Partners Mary Grove and Brett Brohl. The firm did not say whether its portfolio companies were impacted. Another firm, Minneapolis- and Menlo Park, Calif.-based Rally Ventures, did say several of its portfolio companies were banking with SVB.
What happens next to SVB is still unclear. The FDIC is reportedly planning to hold a second auction this week on the bank, after an attempt failed over the weekend, the Silicon Valley Business Journal reported.
Bread & Butter pointed to the significance Silicon Valley Bank has played in the tech ecosystem in the U.S., recognizing it as a “funder and supporter to so many … including here in our region,” the statement said. “We’re glad to see federal leadership with the immediate backstop and are hopeful for a positive long-term outcome for the entirety of the SVB business.”
The ecosystem may not yet be entirely out of danger, Adam Choe, managing partner for Tundra Ventures, said in a statement. "Most founders and funders would agree that caution is still necessary. Personally, I am incredibly relieved to see that the damage was mitigated as best and as fast as possible."
"Fingers crossed that this is the end of it," he added.
