Notes from a bank run

Photo by Gopal Vijayaraghavan

My startup, Useful Sensors, has all of its money in Silicon Valley Bank. There are a lot of things I worried about as a CEO, but assessing SVB’s creditworthiness wasn’t one of them. It clearly should have been. I don’t have any grand theories about what’s happened over the last few days but I wanted to share some of my experiences as someone directly affected.

To start with, Useful is not at risk of shutting down. The worst case scenario, as far as I can tell, is that we only have access to the insured amount of $250k in our SVB account on Monday. This will be plenty for payroll on Wednesday, and from what I’ve seen there are enough liquid assets that sales of the government bonds that triggered the whole process should be enough to return a good portion of the remaining balance within a week or so. If I need to, I’ll dip into my personal savings to keep the lights on. I know this isn’t true for many other startups though, so if they don’t get full access to their funds there will be job losses and closures.

Although we’re not going to close, it is very disruptive to our business. Making sure that our customers are delighted and finding more of them should be taking all of our attention. Instead I spent most of Thursday and Friday dealing with a rapidly changing set of recommendations from our investors, attempting to move money, open new accounts, and now I’m discovering the joys of the FDIC claims process. I’m trying to do this all while I’m flying to Germany for Embedded World to announce a new distribution deal with OKdo, and this blog post is actually written from an airport lounge in Paris. Longer term, depending on the ultimate outcome it may affect when we want to raise our next round. To be clear, we’re actually in a great position compared to many others, I’m an old geezer with savings, but long-term planning at a startup is hard enough without extra challenges like this thrown in.

It has been great having access to investors and founders who are able to help us in practical ways. We would never have been able to open a new account so quickly without introductions to helpful staff at another bank. I’ve been glued to the private founder chat rooms where people have shared their experiences with things like the FDIC claims process and pending wires. This kind of rapid communication and sharing of information is what makes Silicon Valley such a good place to build a startup, I’m very grateful for everyone’s help.

Having said that, the Valley’s ability to spread information and recommendations quickly was one of the biggest causes of SVB’s demise. I’ve always been a bit of a rubbernecker at financial disasters, and I’d read enough books on the 2008 financial crisis to understand how bank runs happen. It was strange being in one myself though, because the logic of “everyone else is pulling their money so you’d better too before it’s all gone” is so powerful, even though I knew this mentality was a self-fulfilling prophecy. I planned on what I hoped was a moderate course of action, withdrawing some of our funds from SVB to move to another institution to gain some diversification, but by the time I was able to set up the transfer it was too late.

Technology companies aren’t the most sympathetic victims in the current climate, for many good reasons. I thought this story covers the political dimensions of the bank failure well. The summary is that many taxpayers hate the idea of bailing out startups, especially ones with millions in their bank accounts. There are a lot of reasons why I think we’ll all benefit from not letting small businesses pay the price for bank executives messing up their risk management, but they’re all pretty wonky and will be a hard sell. However the alternative is a world where only the top two or three banks in the US get most of the deposits, because they’re perceived as too big to fail. If no financial regulator spotted the dangers with SVB, how can you expect small business owners to vet banks themselves? We’ll all just end up going to Citibank or JPMorgan, which increases the overall systemic risk, as we saw in 2008.

Anyway, I just want to dedicate this to all of the founders having a tough weekend. Startups are all about dealing with risks, but this is a particularly frustrating problem to face because it’s so unnecessary. I hope at least we’ll learn more over the next few weeks about how executives and regulators let a US bank with $200 billion in assets get into such a sorry state.