Silicon Valley Bank collapse may lead to 1 lakh layoffs, Y Combinator writes to US Treasury Secy Janet Yellen

Y Combinator, an American technology startup accelerator, has written to US Treasury Secretary Janet Yellen saying the collapse of Silicon Valley Bank (SVB) will affect over a lakh of jobs and thousands of startups. In a petition, which has been signed by over 3,500 CEOs and founders representing over 2 lakh employees, the accelerator has urged the secretary for relief and attention to an immediate critical impact on small businesses, startups, and their employees who are depositors at the bank.

"We are asking you to save innovation in the American economy," said Garry Tan, CEO & President of Y Combinator. According to the NVCA, SVB has over 37,000 small businesses with more than $250,000 in deposits, he said. "These balances are now unavailable to them, and without further intervention, according to the FDIC website, may be inaccessible for months to years."

In the Y Combinator community, Tan said, one-third of startups with exposure to SVB used SVB as their sole bank account. As a result, they will fail to have the cash to run payroll in the next 30 days.

"By that measure, we can estimate that payroll-related furlough or shutdown will impact more than 10,000 small businesses and startups," he wrote. "If the average small business or startup employs 10 workers, this will have an immediate effect of furlough, layoff, or shut down, affecting over 100,000 jobs in the most vibrant sector of innovation in our economy."

SVB was shut down by the US regulators on Friday on the ground that it was incapable of paying its obligations due to a cash crunch. The collapse was triggered after the lender took a hit of $1.8 billion following the sale of government bonds, whose value had plunged due to rate hikes.

Y Combinator said the bank's failure has a real risk of systemic contagion and it has already instilled fear among founders and management teams to look for safer havens for their remaining cash, which can trigger a bank run on every other smaller bank.  

"If we allow this to happen, it will immediately impact the US technology industry and US competitiveness worldwide and ultimately set back US competitiveness by a decade or more, while the rest of the world races forward," the petition states.

The petition, shared on LinkedIn, says nearly 40,000 of all depositors at Silicon Valley Bank were small businesses. "If swift action isn't taken, over 100,000 people could soon lose their jobs."