Silicon Valley Bank helped make San Diego a good place for startups but with its collapse, now what?

Silicon Valley Bank helped make San Diego a good place for startups but with its collapse, now what?

On Thursday, Cody Barbo began receiving messages from several bankers that he had met over the past decade as an entrepreneur pitching their services.

The sudden outreach was unusual. It sent Barbo, chief executive of San Diego startup Trust & Will, to social media to see what was going on.

“I saw not very nice things happening to Silicon Valley Bank,” said Barbo, whose company is a customer. “Their stock was going into free fall, and a lot of founders that I follow and venture capitalists that I follow were urging their companies to get their money out.”

That sparked a flurry of conversations among Trust & Will’s executive team, lawyers and board of directors. Barbo was able to withdraw the majority of the startup’s funds from Silicon Valley Bank before the wire transfer cutoff time.

He declined to say how much. Last month, Trust & Will, which offers an affordable, easy way to create trust and wills online, raised $15 million in venture capital.

“Most of the cash that we raised to get to profitability we got out, and we will see how it shakes out,” said Barbo. “I feel really bad for companies that didn’t get money out. They may not be able to make payroll this next month.”

Crippled by a massive run on deposits, Silicon Valley Bank was seized by the California Department of Financial Protection and Innovation early Friday, which handed the troubled bank over to the Federal Deposit Insurance Corp. as receiver.

The tech-focused bank is based in Santa Clara, but it has deep roots in San Diego. David Titus, a prominent local venture capitalist, lawyer and startup mentor, was among the co-founders of the bank back in the early 1980s. It is part of the bedrock of the startup ecosystem. It had 17 branches in California and Massachusetts and boasted on its website that about half of all venture capital-backed startups in technology and life sciences were customers.

“Several years ago, we did a survey of our companies and found a vast majority — when they raised money — put it in Silicon Valley Bank,” said Rory Moore, head of local startup incubator EvoNexus. “And I’m going to say it is still the same today.”

When regulators stepped in, Silicon Valley Bank had $209 billion in assets and $175 billion in deposits, according to the FDIC. Regulators said depositors will have access to insured deposits no later than Monday morning.

But many of Silicon Valley Bank’s customers had deposits that exceed the $250,000 federal insurance limit — some 87.5 percent of accounts at year-end, according to its annual report.

That has created uncertainty among its tech and life sciences startups who were unable to get their money out.

“For the later stage companies that have so much money in one spot that is not federally insured and is over $250,000, that is probably what people are scared about right now,” said Neal Bloom, managing partner at Interlock Capital and an angel investor. “Will I ever get it back, or will it take some time?”

Bloom is in the process of contacting startups that he has invested in to determine their deposit exposure at Silicon Valley Bank.

“I am already hearing from my angel portfolio saying we might need to raise an insider round just to have cash on hand to make the next few payrolls,” he said. “I would imagine any later stage companies that already have (venture capital) investors are probably going back to them and saying, Hey, we need some cash-on-hand right now. Help if you can.”

He added that the collapse of Silicon Valley Bank is a blemish on the reputation of the startup and venture capital community.

“The bigger deal is just look at what paranoia can cause,” he said “This could have been prevented if the mania hadn’t happened. I imagine a bigger bank would like to take up this book of business, so I am sure there are talks about buying Silicon Valley Bank, and I hope it happens soon so there is protection. But for an already risky industry, this doesn’t help us.”

San Diego typically ranks in or near the top 10 metropolitan areas nationwide for startup funding. The region’s startups pulled in $4.85 billion last year. In 2021, local startup funding topped $9.5 billion.

Silicon Valley Bank has been part of the fabric that made San Diego a good place to launch startups, said Mike Krenn, head of Connect/San Diego Venture Group.

“I am disappointed by the fact that the community that Silicon Valley Bank supported for so long did not lean in to support them back” during Thursday’s run on deposits, said Krenn.

“I am less worried about the companies that have deposits with them,” he continued. “I think that will get sorted out. It would be ludicrous for the Fed not to honor those deposits. That would just have a devastating effect on the innovation ecosystem across the country.”

Barbo also believes that money deposited at the bank won’t be lost. “The bank has such a great reputation. They have taken such good care of the tech community for 40 years now. And my hope is a top 5 bank sees the value in that and wants to absorb those companies as customers.”

This content was originally published here.