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Tech startup leaders concerned about making payroll following Silicon Valley Bank closure

Silicon Valley Bank’s downfall is creating a financial crisis for some startups. (GeekWire Photo / Nate Bek)

Simply meeting payroll was likely not atop the to-do list for most founders earlier this week.

But now many startups are scrambling to figure out if they’ll be able to pay their employees in the fallout of Silicon Valley Bank’s rapid meltdown.

It’s unclear if and how companies that stored cash with the bank will be able to access funds as government regulators take control of SVB, a banking partner for thousands of tech startups, including many in the Seattle region.

The FDIC said insured depositors will have full access to their deposits no later than March 13. But it only insures accounts up to $250,000 — and most of SVB’s deposits are above that limit.

For some startups, $250,000 isn’t enough to cover payroll expenses. And many companies need to pay employees on March 15.

“I want clarity,” said JT Garwood, founder and CEO of Seattle startup bttn. “Every founder needs clarity on this situation. The longer we wait, the more uncertainty it creates.”

This weekend is pivotal for what happens next, Axios reported. If regulators can find a buyer for SVB, that would be a best-case scenario.

But if that doesn’t happen, it’s on the FDIC to pay out advanced dividends it says will go to uninsured depositors within the next week.

“The #1 pressing issue for these startups is *payroll* — you can’t have people work if you can’t pay them,” tweeted Garry Tan, CEO of Y Combinator. “This means mass furlough. It might mean thousands of startups die before the FDIC gets through its receivership process and releases the funds.”

Many CEOs are trying to transfer their funds out of SVB and set up corporate accounts at other banks. Avni Patel Thompson, founder of Milo, said she was “shaking with relief” after she was able to move her company’s funds.

Others are still waiting.

Some venture capital firms are helping fund payroll expenses for affected portfolio companies.

Meanwhile, competing banks are seizing opportunity. Alliance of Angels, an angel investing group based in Seattle, sent an email Friday recommending startups to transfer funds out of SVB and into Brex. “Are Your Dollars About to Go Up in Flames in SVB? Switch to Brex!” read the subject line of the email.

Some founders and investors we spoke with said they couldn’t comment because they were too busy assessing the situation, highlighting the complexity and urgency of the fallout.

“Fully firefighting right now so don’t have time to be thoughtful,” said Aviel Ginzburg, general partner at Seattle firm Founders’ Co-op.

Even company leaders who don’t bank with SVB are concerned about potential impact.

“We are assessing the risk associated with holding our operating cash in traditional business checking/savings accounts if they only provide FDIC insurance up to $250,000,” said Loopr founder Priyansha Bagari.

Seattle entrepreneur Eric Branner, founder of Fons, said the effects of SVB’s collapse is “unfathomable” and that the effects will go far beyond companies that can’t pay their bills or employees. “Feels like an inflection point,” he tweeted.

Dan Shapiro, a longtime entrepreneur and CEO of Seattle startup Glowforge, said he banked with SVB for almost two decades before switching to JPMorgan Chase last year.

“I’m looking at my fellow founders and entrepreneurs with such sorrow,” he said. “It’s a painful alignment of macroeconomic trends and bad luck. There are a lot of people who will be worried about how they’re going to fund payroll, who should be able to focus on building their businesses.”

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