Startups anxious after collapse of SVB

After Silicon Valley Bank went bankrupt, startup founders are starting to worry about paying employees.

Rippling, a payroll service provider, notified customers on Friday that some process had stalled because SVB handled its payments. The company, a startup itself, switched to JPMorgan Chase, but not soon enough: Paychecks were already “in flight” with SVB and have yet to be paid out — and the firm is still trying to understand what the bank’s collapse on Friday will mean for them, Rippling Chief Executive Officer Parker Conrad said in a Twitter post.

We (Rippling) discovered yesterday that Silicon Valley Bank had unexpected solvency challenges. Just now, we learned that the FDIC had stepped in and effectively shut down SVB.

Startup founder Brad Hargreaves said some firms may not be able to make payroll next week. And because boards are incredibly sensitive to employing workers they can’t pay, he said, “Expect mass layoffs later today, Monday at latest.”

Founder and CEO of early-stage startup Refiberd, Sarika Bajaj, said Silicon Valley Bank had been a customer for three years. Bajaj, who was at the Sand Hill Road branch of SVB in California on Friday, tried to make withdrawals but couldn’t and is growing concerned about payroll for her and her two team members.

More than half of tech companies “keep the lion’s share of their cash at SVB,” said Greg Martin, founding partner of the investment firm Liquid Stock. “They all need to make payroll early next week.”

Some venture capitalists raced to assist in setting up temporary cash funds to help affected startups make payroll next week. Spark Capital on Friday was steering portfolio companies in need of aid toward Liquidity Capital MC Ltd., which offers financing for startups and posted on LinkedIn that it would offer capital to those affected by Silicon Valley Bank’s failure within 24 hours, a person familiar with the matter said. Liquidity Capital is among Spark’s portfolio companies.

It was rumored that a startup would layoff staff on Friday, but the Silicon Valley Bank situation prevented that, since the bank was unable to pay severance.