{"id":619247,"date":"2023-03-18T09:49:04","date_gmt":"2023-03-18T14:49:04","guid":{"rendered":"https:\/\/news.sellorbuyhomefast.com\/index.php\/2023\/03\/18\/the-weekend-silicon-valley-stared-into-the-abyss\/"},"modified":"2023-03-18T09:49:04","modified_gmt":"2023-03-18T14:49:04","slug":"the-weekend-silicon-valley-stared-into-the-abyss","status":"publish","type":"post","link":"https:\/\/newsycanuse.com\/index.php\/2023\/03\/18\/the-weekend-silicon-valley-stared-into-the-abyss\/","title":{"rendered":"The Weekend Silicon Valley Stared Into the Abyss"},"content":{"rendered":"
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On Friday, March<\/span> 10, Mike Wheeler, president and chief legal officer of payroll startup Patriot Software, was on a five-day cruise off the coast of Florida celebrating his brother\u2019s wedding. When he stepped ashore that morning for a brief stop in Key West, his cell service returned and he got a message from a representative of the company\u2019s former bank: \u201cYou ready to move some $ out of Silicon Valley bank??? ????\u201d<\/p>\n

Wheeler replied with a question mark. During the night, his company should have sent about $40 million in paychecks to fry cooks, librarians, and 46,000 other US workers via Silicon Valley Bank, or SVB. The banker sent back a screengrab of a stock chart showing that SVB\u2019s shares had fallen nearly 90 percent while Wheeler was at sea. SVB was on the brink of collapse\u2014and Wheeler, stuck on a ship\u2014knew almost nothing of the crisis unfolding back on dry land.<\/p>\n

Late Wednesday, SVB,\u00a0famed for startup-friendly loans and great wine parties<\/a>, had announced it would be raising extra cash after losing $1.8 billion on low-interest bonds. The news followed weeks of gossip about the bank\u2019s health and triggered a full-pelt panic after its CEO botched a conference call aimed at assuaging customer fears. SVB clients had tried to pull out a combined $42 billion the day before Wheeler received his perplexing text message, regulators say, the biggest bank run in US history. The startup industry\u2019s go-to bank had closed that day $958 million short on cash. Wheeler would soon learn that things had only gotten worse since then.<\/p>\n

Friday, March 10<\/p>\n

As Wheeler caught up with the news in Key West, he learned that SVB\u2019s troubles affected not just Patriot, based in Canton, Ohio, but also the roughly 57,000 organizations for which it calculates and disburses wages and payroll taxes. SVB holds those funds in escrow in the days before they get sent to workers at 12:01 am on Fridays. The chaos unfolding at SVB had broken that system, Wheeler discovered as he started poring through delayed text messages. No one had been paid\u2014not even Patriot\u2019s own staff.<\/p>\n

By that point, Allie Egan, founder and CEO of Veracity Selfcare in New York, had experienced a full 24 hours of panic. Venture capital firms including Andreessen Horowitz and Peter Thiel\u2019s Founders Fund\u00a0had reportedly been advising their portfolio companies<\/a> to diversify away from SVB, and Egan\u2019s investors had joined the chorus on Thursday amid the bank run. But the agreement for Veracity\u2019s seed funding stipulated that the money had to stay at the bank.<\/p>\n

Egan held back from moving money\u2014for now. But she was still concerned. \u201cI was really afraid that we lost everything except the bare minimum,\u201d she says, referring to the $250,000 per account guaranteed under the US Federal Deposit Insurance Corporation, or FDIC. That would cover just two months\u2019 payroll. \u201cAs a founder, you have a lot of investors text you, and they’re like, \u2018What’s your plan? What\u2019s your plan?\u2019 And you\u2019re like, \u2018I don\u2019t know. I can\u2019t really have a plan.\u2019\u201d<\/p>\n

Taryn Aronson, CFO of smart oven and meal delivery company Tovala, based in Chicago, had tried to get the company\u2019s money out of SVB the night before. But she had woken on Friday to the unwelcome news that the transfers had failed. Just like Patriot\u2019s paycheck deposits for 8,100 clients that day, the cash was stuck. Tovala began putting in place a worst-case scenario to stretch its remaining capital for a couple of months. It was an \u201call-out crisis,\u201d says Tovala\u2019s founder and CEO, David Rabie.<\/p>\n

Mid-morning on Friday, with the cruise ship still temporarily berthed in Key West, Patriot\u2019s Wheeler left his family at a butterfly conservatory while leading a Zoom war room with colleagues back in Ohio. They tried resending the failed payroll transfers to no avail. At 11:56 Eastern, SVB emailed a just-issued\u00a0government press release<\/a> stating that the FDIC was taking over. An SVB representative agreed to join Patriot\u2019s war room call and relayed news no customer wants to hear: The worst-case scenario had come true and the bank had collapsed.\u00a0<\/p>\n

Inside SVB, some employees figured that their jobs were lost and the bank was dead. \u201cThe general consensus was that it was wind-down mode,\u201d says one department head, who asked to remain anonymous, as they were not authorized to speak to the media. \u200b\u200bSVB and FDIC declined to comment for this story.<\/p>\n<\/div>\n

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Manan Mehta, founding partner of San Francisco-based Unshackled Ventures, an early-stage\u00a0venture capital fund focused on immigrant founders, took the government pausing the SVB bloodletting as a sign the bank might be saved. But it did not ease his distress throughout Friday. \u201cI was a duck on water. I was calm on top but crazy worried on the bottom,\u201d Mehta says. His\u00a0Whoop 4.0<\/a> fitness tracker showed his recovery score, a measure of \u201chow prepared your body is to perform,\u201d dipping to 19 percent on Friday from 85 percent the day before.<\/p>\n

Mehta had reason to be worried. He and his wife had chosen not to join the run on SVB the day before, confident that regulators and insurance would protect the bank. But now his accounts\u2014and those of companies he’d invested in\u2014were caught in limbo, and the situation seemed to be deteriorating fast.<\/p>\n

Across the Atlantic, SVB\u2019s UK subsidiary claimed it would be unaffected by the collapse of its US parent. \u201cThat was not reassuring in the slightest,\u201d says\u00a0Dom Hallas of Coadec, a UK startup trade group. \u201cIt was quite apparent that we were in significant trouble.\u201d He started calling UK government officials to lobby for a rescue and didn\u2019t stop until 1:30 am UK time. By then, the Bank of England had declared SVB UK insolvent.<\/p>\n

Hours after\u00a0Hallas went to sleep in London, Joe Hyrkin, CEO of online publishing software maker Issuu, was calling an Uber on Friday afternoon at San Francisco Airport, having just landed from meeting colleagues in Portugal. Uber declined his corporate card, issued by SVB, which held most of Issuu\u2019s funds. \u201cWe didn\u2019t know how and when we would be able to access our cash,\u201d Hyrkin says. Fighting jet lag and stress, Hyrkin took naps in between contacting everyone he thought might help figure out how to get his 130 employees paid the following week.<\/p>\n

By this time, payroll processor Patriot had hatched its own plan. It advised customers to write paper checks to workers and inform Patriot so it could cancel electronic deposits. The startup also began working to sign up payroll escrow accounts with two new banks. \u201cWe ended up setting up two full banks by Monday, a process that took us about four months to do with SVB\u2014in under three days,\u201d Wheeler says.<\/p>\n

Against its advisors\u2019 wishes, Patriot also\u00a0launched a live blog<\/a> to keep furious customers in the loop. Wheeler was among the last passengers to make a 4 pm boarding call that Friday for the rest of the wedding party cruise destined for Nassau, in the Bahamas, still unsure when the 46,000 Americans relying on Patriot would finally get paid.<\/p>\n

Saturday, March 11<\/p>\n

As panicked founders in the US tried and struggled to sleep on Friday night, the UK\u2019s equally jumpy tech sector was just waking up on Saturday morning. It was now March 11, two days after the bank run. About 200 tech CEOs in the UK sent\u00a0an open letter to government<\/a> treasury chief Jeremy Hunt. The letter called SVB\u2019s failure an \u201cexistential threat\u201d to the country\u2019s tech sector and pleaded for intervention. Within hours, the government convened investors, trade groups, and other stakeholders to talk through core challenges, including how to keep the bank liquid and its clients able to operate, and how to communicate clearly about the crisis.<\/p>\n

As dawn broke on the East Coast of the US, a long day of calls began. SVB employees spoke to clients throughout the day, telling them, \u201cWe\u2019re here for you,\u201d the bank source says, though neither employees nor clients could access its systems. Mehta connected entrepreneurs to other banks, some of which also worked the phones to snap up new clients from SVB.\u00a0<\/p>\n<\/div>\n

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Egan of Veracity Selfcare tried filling out FDIC forms to get back her startup\u2019s money, desperately seeking to claw back anything she could. But the number and complexity of the forms confounded her, and she feared any errors would disqualify her from getting back vital cash. \u201cIt would probably kill my company,\u201d she says.<\/p>\n

Hyrkin, who lives in Palo Alto in the heart of Silicon Valley, got reassurance few others did by stopping by a nearby SVB branch at just the right time. \u201cLights were on, the parking lot was full. It was clear people were working,\u201d he says. He approached someone taping a poster to the building\u2019s exterior and they flashed an FDIC badge, saying that customers would have access to the $250,000 insured portion of deposits on Monday and any additional funds later in the week. Hyrkin judged that the company \u201cwould get enough of our money quickly enough\u201d to be OK. But with the shocks of the past 24 hours still reverberating, he continued setting up new accounts to direct Issuu sales away from SVB just in case.<\/p>\n

Patriot\u2019s Wheeler, still literally at sea, had paid dearly for some peace of mind. The company hired attorneys at a rate of $1,700 an hour, who advised that payroll funds escrowed on behalf of customers should be protected because the money was already designated to be paid out. When the money would become accessible, no one knew for sure. Altogether, including taxes and the following week\u2019s wages, about $100 million in client funds were locked up at SVB.<\/p>\n

As Wheeler sat down for his brother\u2019s wedding dinner aboard the cruise ship without mobile service, an iMessage came in over Wi-Fi from an SVB banker asking to chat. They relayed a message from Rob Freelen, a partner at VC firm Sozo Ventures and former SVB executive, who was among the Silicon Valley investors trying to influence lawmakers and the Biden administration to guarantee all SVB deposits. Political megadonors\u00a0Reid Hoffman<\/a>, a LinkedIn cofounder now at VC firm Greylock, and startup investor\u00a0Ron Conway<\/a> were reportedly part of that push.<\/p>\n

Freelen had sought out Patriot because he saw it as a powerful example to get in front of Sherrod Brown, the US senator from Ohio and the chair of the senate\u2019s banking committee. As the wedding party continued, Wheeler helped tap out a\u00a013-tweet thread<\/a> tagging Brown and other lawmakers, along with an open letter from Patriot CEO and founder Mike Kappel. It was scheduled to post early the following morning.<\/p>\n

\u201cWe request that you consider the small businesses and their employees nationwide and #savesvb,\u201d\u00a0one of the tweets<\/a> says. \u201cThis isn\u2019t a handout for the tech-elite and their investors. This is a lifeline for the backbone of our economy and the prevention of catastrophic ripple effects.\u201d<\/p>\n

Sunday, March 12<\/p>\n

Backup plans began to materialize. Egan set up a GoFundMe crowdfunding campaign to cover her startup\u2019s costs for the foreseeable future. Tovala\u2019s Aronson persuaded her investors to finance a bridge loan.<\/p>\n

Within an hour, and before Tovala\u2019s loan was countersigned, their efforts proved superfluous. At 6:15 pm Eastern,\u00a0the US government announced<\/a> that it would ensure no SVB customer lost money, by tapping an insurance fund paid into by banks. Neither startup executive was ready to totally trust that all was safe, but Egan would eventually refund the money that had been raised in that hour.<\/p>\n<\/div>\n

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Mehta, the investor, and Ashumi Shippee, CFO for color cosmetics company Haus Labs by Lady Gaga, were encouraged when they heard the news. It elicited, both say, a \u201csigh of relief.\u201d Mehta turned off his computer and didn\u2019t look at his phone again that day. His fitness tracker recovery score rebounded to 39 percent. Shippee took her own break, and a walk on the beach, after trading information with other CFOs nearly nonstop for 72 hours.<\/p>\n

<\/figure>\n

Now in Nassau, Patriot\u2019s Wheeler heard of the FDIC guarantee via text message after buying an international mobile plan but missed a call from Senator Brown. In a voicemail heard by WIRED, Brown says he had seen the open letter and describes how federal officials worked through the weekend to ensure SVB deposits would be fully guaranteed. Alysa James, a spokesperson for Brown, says the senator called several Ohio companies as he worked to protect US workers from paying the price for other people\u2019s failed risky bets.<\/p>\n

Wheeler, who had been making plans to fly to Washington, DC, later on Sunday with his family to lobby lawmakers in person, could now enjoy what little remained of the wedding celebrations. \u201cI may be the only person who\u2019s lost weight on a cruise ship,\u201d he says.\u00a0<\/p>\n

Monday, March 13<\/p>\n

At 4 am UK time, industry boss Hallas woke up to a text message suggesting a deal had been struck to buy SVB UK. Hallas, who had gone to bed only three hours earlier while awaiting word from government officials, trudged into Coadec\u2019s office and prepared to inform the startups that belong to the trade group. Soon,\u00a0HSBC announced<\/a> it had bought SVB UK for \u00a31 ($1.20). The more than 40 publicly traded companies Hallas says had drafted letters to investors warning of their exposure to SVB no longer needed to send them. The bank was back.<\/p>\n

SVB\u2019s employees resumed\u00a0issuing loans and connecting customers to their accounts as some systems returned online. \u201cIt\u2019s a true revival story,\u201d the SVB source says. \u201cThe sentiment\u2014the whiplash\u2014we all experienced Sunday evening to Monday is that this institution is really worth saving.\u201d<\/p>\n<\/div>\n

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Issuu\u2019s Hyrkin again checked in on his neighborhood branch in Palo Alto. Online transactions were not going through, and he wanted to transfer more funds out. The branch was issuing cashier\u2019s checks, but before he even moved a spot in 45 minutes of waiting in line, the online transfer went through. One SVB employee called Egan, telling her that her corporate line of credit was still available to use, if she wanted.\u00a0<\/p>\n

Patriot wasn\u2019t finding similar luck. Even by late Monday, the SVB systems Patriot relied on to process payroll for its clients remained down, and switching to another bank now risked further delays. Some of the startup\u2019s customers took to\u00a0social media<\/a>\u00a0to complain<\/a> about missing paychecks. Patriot\u2019s chief product officer, Kyle Dreger, says the company\u2019s customer service agents fielded a total of about 5,900 incoming calls, 1,200 chats, and 550 emails on Friday and Monday, a volume normally received over two weeks.<\/p>\n

As some of the dust settled, SVB\u2019s new regime had a public relations battle to win. Tim Mayopoulos, the government-appointed CEO and a former Bank of America general counsel, held a series of Zoom calls with customers and other constituents throughout Tuesday and Wednesday. Wearing a blue checked shirt, looking tired, and coughing repeatedly on one Wednesday call viewed by WIRED, he sought to halt the swirl of rumors about the bank\u2019s health that had tipped it into failure in the first place.<\/p>\n

Mayopoulos pleaded with angered customers to return their deposits. The bank\u2019s fate was in their hands, he said. \u201cIf our clients choose to take their deposits and keep them in other institutions, that clearly limits the range of options that we have, in terms of the ultimate outcome,\u201d he said. \u201cIf, on the other hand, you decide to return at least some of those deposits here, it creates many more options for us as an institution and creates more options for what we can do going forward.\u201d<\/p>\n

Freelen, the former employee who helped with lobbying of US lawmakers, was convinced. He began calling companies he invested in to tell them he expected them to keep at least some of their funds at SVB. Fellow investor Mehta found Mayopoulos exceptional. \u201cThe level of clarity, transparency, and honesty just reinforced why it\u2019s still a great bank,\u201d he says.\u00a0<\/p>\n

Not everyone caught in SVB\u2019s crash is so sure it\u2019s still \u201ca great bank\u201d or even a financially responsible bet. The bank\u2019s shares remain unlisted on Wall Street, and its divisions and assets are being auctioned by the government for other banks or investment funds to pick over. Whether SVB can once again provide its signature\u00a0startup-friendly mix of loans and perks<\/a> is unclear, potentially adding friction to the tech ecosystem at an\u00a0already<\/a>\u00a0uncertain time<\/a>.\u00a0\u201cThere\u2019s very, very few lenders out there who will work with you at an earlier stage, with many predatory venture lenders out there,\u201d says Shippee of Haus Labs, which is sticking with SVB.<\/p>\n

Patriot is diversifying where it puts funds.\u00a0\u201cWe loved SVB, but the trust is broken,\u201d Wheeler says. He\u2019s unsure whether the company lost customers over the debacle. About a quarter of the 8,100 Patriot clients scheduled to pay some 16,000 staff last Friday reported resorting to checks or other means. About 30,000 other workers got paid five to six days late.\u00a0<\/p>\n

By the end of his cruise, Wheeler had spent just 26 minutes in the ocean or pool, according to his\u00a0Apple Watch<\/a>. His overworked iPhone had been \u201cmy only friend on board,\u201d he says. Late on Tuesday March 14, he could finally text his SVB banker, \u201cHuzzah! Folks are paid.\u201d<\/p>\n<\/div>\n<\/div>\n

Read More<\/a>
\n Paresh Dave, Chris Stokel-Walker<\/p>\n","protected":false},"excerpt":{"rendered":"

On Friday, March 10, Mike Wheeler, president and chief legal officer of payroll startup Patriot Software, was on a five-day cruise off the coast of Florida celebrating his brother\u2019s wedding. When he stepped ashore that morning for a brief stop in Key West, his cell service returned and he got a message from a representative<\/p>\n","protected":false},"author":1,"featured_media":619248,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[393,46,3430],"tags":[],"class_list":["post-619247","post","type-post","status-publish","format-standard","has-post-thumbnail","category-silicon","category-technology","category-weekend"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts\/619247","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/comments?post=619247"}],"version-history":[{"count":0,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts\/619247\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/media\/619248"}],"wp:attachment":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/media?parent=619247"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/categories?post=619247"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/tags?post=619247"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}