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Startup founders who banked with SVB found themselves asking investors for help making payroll last weekend\u2014to a mixed response.<\/p>\n
Los Angeles Times via Getty Images<\/small><\/figcaption><\/figure>\nWhen founders scrambled to make payroll after the closure of SVB, some VC firms promised to help\u2014but only a few actually wired money.<\/h2>\n
Last Friday afternoon, OpenAI CEO Sam Altman issued a challenge to Silicon Valley\u2019s venture capitalists: Put your money where your mouth is. \u201cInvestors who ask \u2018how can I be helpful\u2019: today is a good day to offer emergency cash to your startups that need it for payroll or whatever,\u201d Altman tweeted<\/a>. \u201cNo docs, no terms, just send money.\u201d<\/p>\n In the wake of Silicon Valley Bank\u2019s abrupt closure that morning<\/a>, Altman\u2019s message struck at the big question for tech entrepreneurs and investors alike: With deposits at SVB frozen, how would they pay employees<\/a> the following week?<\/p>\n Over that frantic weekend, venture capital firms scrambled to respond to the crisis. Some found creative ways to ensure their founders would have access to cash on Monday, at times offering up their partners\u2019 personal funds. More set up contingencies to make loans if necessary, then hoped it would never come to that. Still others chose not to make such an offer, or failed to reach a consensus at all.<\/p>\n The moment mostly passed quickly; the FDIC announced<\/a> it would protect all SVB deposits by Sunday night, meaning that by Monday morning, much of the situation\u2019s urgency\u2014and need for VC firms to back up their promises\u2014had passed. But a few still did wire funds. The founders involved in the crisis won\u2019t forget who stepped up, and who floundered at a crucial moment.<\/p>\n Conversations with about 20 investors and founders suggested that non-traditional investors like Altman, or smaller, individual-driven firms like Jason Lemkin\u2019s SaaStr Fund, appeared to move the fastest, alongside several bigger firms that got creative in their problem-solving, including First Round and Redpoint. Most established firms, however, didn\u2019t impress.<\/p>\n \u201cSadly getting requests from companies we have very minor positions in who aren\u2019t getting help from their major investors,\u201d billionaire investor Vinod Khosla said on Twitter<\/a>. \u201cOther investors being predatory. Not a time to make money.\u201d<\/p>\n When Alex Lorestani, CEO of startup Geltor, which provides vegan proteins for beauty-product makers, started receiving emails from his investors last Thursday, most of them were one-liners. \u201cThey just asked, \u2018Hey, are you exposed?\u2019\u201d<\/p>\n Geltor isn\u2019t small\u2014it raised $91 million<\/a> in 2020\u2014but it was<\/em> exposed, its payroll funds tied up at SVB, with a transfer attempt to Mercury still pending. When Lorestani informed employees, then his 100-plus investors, however, help came from unexpected places: a fellow founder with some cash to spare, and newer firm Fifty Years, smaller than many with a $90 million fund. Both set up wired loans to transmit on Monday. Then those got blocked as potential fraud. At that point, Fifty Years founding partner Ela Madej connected her own personal bank account to Geltor\u2019s payroll system and paid out the company\u2019s employees herself.<\/p>\n \u201cThat was nuts,\u201d Lorestani told Forbes<\/em>. \u201cIt set a new standard.\u201d<\/p>\n Over the weekend, meanwhile, Madej\u2019s partner Seth Bannon tweeted to call out other VC firms that said they weren\u2019t allowed to offer loans due to their limited partner agreements. \u201cYes you can. Just don\u2019t use LP money,\u201d Bannon wrote<\/a>. His tweet drew an approving one from Khosla, who wrote that his firm, Khosla Ventures, was also working to use partners\u2019 own money to help.<\/p>\n Khosla Ventures didn\u2019t need to send out any loans in the end, partner Samir Kaul told Forbes<\/em>, but was disturbed by the response of other established firms. \u201cThis wasn\u2019t a time to point fingers; it was a time to get our founders to the other side to fight on,\u201d he said. \u201cWhen times are tough, we stick with our companies.\u201d<\/p>\n Bravado CFO Amy Young spent six hours trying to get the startup\u2019s funds tied in SVB to wire out.<\/p>\n Courtesy of Bravado<\/small><\/figcaption><\/figure>\n Another bigger firm highlighted by its peers was Redpoint, where partner Alex Bard and others texted founders before the weekend to tell them they\u2019d find a solution, then set up a separate entity and wired partners\u2019 money into it to be redirected as needed. That promise moved another founder, Sahil Mansuri of salesperson-focused site Bravado, to share the messages in his own tweet thread<\/a>. \u201cIt was an extraordinary measure of compassion and supporting entrepreneurs during a terrible moment,\u201d Mansuri told Forbes<\/em>. He ended up not taking any money, nor did any Redpoint founders, a source with knowledge added. (Greylock set up a similar fund that wasn\u2019t accessed, according to one of its founders.)<\/p>\n As founders attempted to navigate the SVB website on Monday with mixed results, a few large firms surveyed by Forbes<\/em> said they did send out a small amount of checks. Kleiner Perkins made one loan that was repaid within 24 hours; Menlo Ventures also wired one, without a time line for its return, according to partner Matt Murphy.<\/p>\n Perhaps the most active firm was First Round, two sources said. Of the early-stage firm\u2019s 200-plus investments, 80 had money at SVB, one told Forbes<\/em>, and 40 faced payroll concerns. With their LPs\u2019 permission, First Round partners made a low-interest loan back to the firm\u2014which had its own cash tied up at SVB\u2014and made a handful of wires on Friday, then more than an additional dozen on Monday. (A source close to the firm said that such efforts paled in comparison to what some of the firm\u2019s founders did, such as flying to California to be first in line to withdraw money on Monday.)<\/p>\n Most others that investors and founders disclosed to Forbes<\/em>, or that responded to its requests for comment, said they\u2019d prepared to wire loans in some capacity but had not needed to, a group including Accel, Benchmark and Index Ventures. Others were still evaluating options when the FDIC announced its decision, including Lux Capital and Sequoia, sources added.<\/p>\n Among firms linked with Thursday\u2019s bank run on SVB because they reportedly<\/a> warned founders to withdraw their funds, Coatue prepared to offer loans but didn\u2019t, a source said; Union Square Ventures, meanwhile, circulated a loan offer document reviewed by Forbes<\/em> that offered an interest rate of 4.5%, what the firm said was the minimum legal applicable rate for a short-term loan. The loan could also convert into preferred stock from the company\u2019s most recent past funding round, or roll into its next equity financing of $2 million or more at 80% its price, per the document.<\/p>\n USV\u2019s offer, too, went unused in the end by founders, partner Rebecca Kaden told Forbes<\/em> by email. \u201cWe kept in close touch with our companies through Monday morning as the pipes started working again to make sure they all met payroll from their own accounts, which they did,\u201d she wrote.<\/p>\n \u201cFrom talking to other founders, I don\u2019t think many VCs were able to do anything that helpful this weekend.\u201d\n<\/p>\n<\/blockquote>\n Founders Fund, meanwhile, drew heightened scrutiny in part for its ties to Thiel, a public-opinion lightning rod. Blamed by some for helping to fuel the bank run (in reality, other firms warned their founders about SVB long before<\/a>), Thiel eventually told the FT<\/em><\/a> that he deliberately left $50 million in personal funds at SVB over the weekend, confident in the bank\u2019s long-term survival. His firm, meanwhile, was mentioned by multiple peers as one that disappointed in its weekend response.<\/p>\n \u201cThey were saying, \u2018We are not in the business of making loans\u2014that\u2019s not our problem. But we will buy more equity,\u2019\u201d said a partner at a firm that shares portfolio companies with Founders Fund. Firm spokesperson Erin Gleason said Founders Fund did not offer any equity-based convertible notes, known as SAFEs, to companies impacted by SVB.<\/p>\n \u201cCorporate treasury management is ultimately the responsibility of the founders\/CEO,\u201d Delian Asparouhov, cofounder of space manufacturing startup Varda and a Founders Fund investor, tweeted<\/a> on Saturday. \u201cNever forget that.\u201d<\/p>\n Some founders did tack on more funding to their last funding rounds generally, several investors said, with one telling Forbes<\/em> that given 2023 equity pricing, such a move could have easily been more generous. Such notes would be more familiar to VC firms\u2019 usual operations compared to loans, said Sandeep Dahiya, a professor of entrepreneurship at Georgetown University. \u201cThe whole idea of a venture fund isn\u2019t to be lending to assets without collateral.\u201d<\/p>\n If the FDIC hadn\u2019t guaranteed deposits on Sunday and bank runs had extended to other startup banking partners, VC firms would have faced a crucible moment. Instead, it\u2019s impossible to know how they would\u2019ve truly responded when facing dozens, or hundreds, of companies facing business interruptions, with founders and board directors personally liable for employee pay. \u201cI don\u2019t think it was just virtue signaling,\u201d said finance professor Michael Goldstein of Babson College. \u201cWithin the confines of the law, you\u2019d be limiting the damage on a temporary basis and moving on.\u201d<\/p>\n Several founders who spoke to Forbes<\/em> wondered whether firms exaggerated their willingness to help because they anticipated the government making such efforts moot. \u201cFrom talking to other founders, I don\u2019t think many VCs were able to do anything that helpful this weekend,\u201d said one tech CEO, who asked to remain anonymous so they could avoid giving \u201cuntrue fluffy bullshit.\u201d \u201cEven the best-hearted ones were spread thin over just how many companies were affected. So it was really left to founders to rally their resources and pull support from wherever they could.\u201d<\/p>\n Some investors, especially fund managers without the personal means or large enough funds to provide financial assistance themselves, focused instead on providing the most up-to-date information on the state of the government\u2019s response and alternative loan sources like Brex\u2019s weekend emergency fund<\/a>.<\/p>\n \u201cIt was all happening so fast that talking to founders and VCs were your only option,\u201d said founder Jordana Stein, CEO of executive peer-learning startup Enrich, who turned to VC firm Bloomberg Beta\u2019s founder Slack channel after she couldn\u2019t get into a popular founder WhatsApp group that quickly reached the app\u2019s 1,024-member limit. Others turned to Signal and WhatsApp groups, or email groups like A16Z\u2019s CEO distribution list. (The firm declined to comment on whether it offered its founders loans.)<\/p>\n But the investors who actually walked the walk by wiring money, mostly from smaller partnerships or nontraditional funds, told Forbes<\/em> doing so wasn\u2019t nearly as hard as some big firms let on. Altman lined up a number of wires despite being just several days from OpenAI\u2019s big GPT-4 launch. Others that Forbes<\/em> learned sent a number of wires included Conviction founder Sarah Guo, solo capitalist Lachy Groom and former GitHub CEO Nat Friedman. (An honorable mention from several founders went to John Curtius, who reached out to startups he\u2019d backed at Tiger Global to help, despite leaving last year<\/a> to start Cedar Investment Management. But Curtius\u2019 money wasn\u2019t ultimately needed, they said.)<\/p>\n \u201cI did it in 60 seconds. It was easy, and honestly, in a sense, fun, because it\u2019s a time when you want to add value,\u201d said Lemkin at SaaStr Fund. His fund\u2019s money was also at SVB, but he was able to wire founders cash from his personal Wells Fargo account. \u201cI offered immediately and wired without a thought, just told my LPs. But if you are a junior partner at a big fund, I suspect it would be very hard unless the \u2018Big Bosses\u2019 put it together.\u201d<\/p>\n<\/div>\nLoans, Equity And Wires In The SVB Aftermath<\/strong><\/h2>\n
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A Longer Crisis Averted\u2014And Uncalled Bluffs<\/strong><\/h2>\n