SVB collapse: Startups now worried about paying salaries to employees

The Silicon Valley Bank (SVB) collapse has left startup founders worried about their next moves. SVB, which was closed on Friday, is known for lending money to some of the biggest technology startups. The Friday collapse has sent investors and depositors into a frenzy as many experts are touting this as the largest bank closure since Washington Mutual during the peak of the 2008 financial crisis.  

Silicon Valley Bank (SVB) is one of the important lenders for early-stage businesses in the US. As per Fortune.com, the bank has been lending to 50 per cent of all venture-backed companies in the US. Venture or private equity funds made up approximately 56 per cent of the bank's global banking portfolio in 2022. 

Now startups are worried about paying up about paying employees’ salaries. According to a report in Bloomberg, Payroll service provider Rippling notified customers on Friday that some processing had stalled because SVB helped handle its payments. The startup though switched to JPMorgan Chase but said its paychecks were already “in flight" with SVB and have yet to be paid out.  

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.

The CEO of early-stage startup Refiberd, Sarika Bajaj, said she was unable to make withdrawals and is growing concerned about payroll for her and her two team members.  

She said she had been a customer of Silicon Valley Bank for three years and kept most of the company’s funds there. “I’m sure there are lots of people here with lots and lots of employees," she said. “It’s not our reality, but I know it’s going to be a lot of people’s realities." 

A few CEOs, whose funds are trapped at Silicon Valley Bank, are now planning to use their personal wealth to cover their employees’ salaries amid payroll constraints caused by the bank’s failure, the Bloomberg report said. 

Layoff plans on hold 

Some startups were planning to do layoffs looking at the recession and economic challenges. But could not due to the SVB situation it’s illegal to have employees without paying them, the Bloomberg report said. Most startups don’t have the capital to pay severance.  

A few were also considering furloughing as a potential way to bring employees back on the payroll when funds are received. Startups are frantically discussing their options with lawyers, the person added. 

Situation in India 

A major chunk of Y Combinator-backed startups in India are staring at uncertain times after the bank collapsed. SVB was the default banking partner for many Delaware-incorporated tech businesses, sources told Business Today. 

“One or two out of 10 YC-backed companies would have more than $1 million parked with SVB. As per the interactions on YC India founder groups, there are very few who say they have zero dollars parked in SVB. The majority of people had at least $150,000 if not more in their SVB account,” a YC portfolio founder told Business Today. 

Talking about delays in salaries and other funding, a Razorpay Spokesperson said, "The ongoing SVB collapse has unfortunately landed a lot of our Indian Tech Startups in a soup and kept them on tenterhooks in the last 24+ hours. We have been working round the clock and have created a dedicated RazorpayX desk to help our fellow startups urgently move funds from their US banks to India. For all existing RazorpayX users, we’re offering to move their money into their Indian current account as FDI through our partner banks. For anyone who is not a RazorpayX user, we are helping them move their money to a Nostro account through our partner banks." 

As per YC founders, the investor strongly prefers companies to domicile in Delaware, though a few choose Singapore for incorporation. Another founder said many YC start-ups keep the bulk of the funds they raise from investors in their treasury accounts with SVB, making them particularly vulnerable to the bank's troubles. 

Y Combinator President and CEO Garry Tan, who is a third of the incubator’s portfolio startups, in an interview with CNBC said that he will not be able to make payrolls in the next 30 days. 

More than 60 per cent of Indian Y Combinator startups had $250,000 plus in SVB, while the rest have an exposure of up to $250,000. 

For laymen, being a YC-backed startup is like getting a stamp as a unicorn. The incubator investor has backed around 217 startups in India, including some of the most valued ones like Meesho, Razorpay and Groww, among others.

Also read: ‘Silicon Valley Bank is the SBI for startups,' say Indian founders as they brace for uncertainty

Also read: SVB crisis: Vijay Shekhar Sharma says Silicon Valley Bank not a stakeholder in Paytm

Watch: Silicon Valley Bank stock crash: Decoding the lender's crisis and its India investments

Also read: Here’s how Silicon Valley Bank lost more than $80 billion in 24 hours

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