March 10, 2023, should’ve been a day to celebrate for Eric Vogel. He was about to sign a funding deal for his recycling startup, Circularr, after five months of due diligence. The investor just wanted to talk to one last reference, a formality before the deal closed.
That call never happened. “They didn’t show up because it was the day that Silicon Valley Bank went under and one of their main banking partners was SVB,” Vogel said.
The collapse of SVB was swift and stunning, triggering days of sheer terror in Silicon Valley. Y Combinator’s Garry Tan warned that the failure could be an “extinction-level event” for tech startups. Investor Jason Calacanis left the caps lock on, tweeting, “YOU SHOULD BE ABSOLUTELY TERRIFIED.” For a while, it looked like the contagion could spread throughout the US banking system.
Yet just a year after the bank’s dramatic failure and rescue, the industry has mostly returned to normal. Startups are still able to find places to park their money. Several VCs contacted for this story brushed off the interview request, saying that it wasn’t something they thought about anymore. And even Silicon Valley Bank itself is back in business, with the winking marketing slogan, “Yes, SVB.”
But in some corners of the tech world, things didn’t quite go back to the way they were — both for better and for worse.
At Circularr, Vogel never got that last call from investors. The firm he was working with, which he declined to name, did recover banking access, but the investors apologized and dropped out of the round. The deal was scuttled.
“It spooked them,” says Vogel. If not for the SVB crisis, he said, “we would have cleared the round and been off to the races.”
Learning the hard way
The demise of Silicon Valley Bank touched off a difficult year in Silicon Valley, acting as a harbinger of a global slump for startups and investors. VC firm NFX found that 59% of founders surveyed after the crisis thought it would have a chilling effect on their ability to raise money. And even with the artificial intelligence boom, startups in 2023 had their worst funding year since 2019.
At SVB itself, executives have embarked on the long process of trying to rebuilt trust in the Valley — visiting clients and spreading the word that the bank is open for business. Matt Murphy, a partner at Menlo Ventures, said that representatives from the bank visited his firm multiple times over the past year to explain what had changed at SVB, and what stayed the same. Some of the same staff has stuck around, too. “They basically say it’s mostly the same,” Murphy said — except this time with a stronger balance sheet.
SVB commercial banking President Marc Cadieux says the bank’s first step was saying sorry.
“Starting with an apology was essential,” he said. The collapse “was traumatic, no doubt about it.” Now, the the bank is taking “a very patient thoughtful approach to winning back the trust of our clients,” Cadieux said.
Since the collapse, most startups have changed their banking behavior, founders and investors say. At one time, SVB was the default choice for every banking need — from venture debt to savings, and sometimes even mortgages and startup funding. Now, it’s one of a lot of banks that startups work with.
This time last year, “I was freaking out,” said Edith Yeung, general partner at Race Capital, which had 100% of its money parked at SVB. Now, “everybody’s basically making sure that they have multiple bank accounts and that they do not put all their eggs in one basket — just in case,” Yeung said.
Of course, Yeung noted that some founders now avoid SVB altogether. But others can’t quit it. Jai Das, co-founder of Sapphire Ventures, said many startups like SVB’s user interface. Many of his portfolio company finance chiefs wanted to keep using SVB, even after the collapse.
For those startups, Das said he gives the following advice: “You can use SVB if you want, but you cannot have all your cash in SVB.”
The upside
Some fintech startups were able to seize an opportunity in the chaos. As SVB sank, credit card startup Brex Inc. helped companies open Brex accounts and began to put together a $1 billion emergency bridge loan program to help affected companies make payroll.
“We get a lot of customers today because people saw how we reacted to the SVB crisis and how our competitors didn’t react,” said Brex co-CEO Henrique Dubugras.
Brex has more than doubled its customer deposits to about $7 billion from $3 billion since the SVB meltdown, Dubugras said. The company retained more than 80% of the customers that signed up the week of the bank’s collapse.
At Rippling, the workforce-management startup run by Parker Conrad, about $300 million of its funds were frozen at SVB when the bank collapsed. That meant that Rippling customers wouldn’t be able to pay thousands of employees unless the company figured something out.
Within hours, Conrad cobbled together $500 million in funding to make sure people got paid. “It was very nerve-wracking, obviously,” he said. “Probably the most stressful day of my life.”
SVB’s eventual bailout meant Rippling never ended up having to touch the money it raised. Conrad said his company still has it stashed away, along with the $250 million it raised in 2022. Rippling emerged from the crisis in a relatively strong position. Still, Conrad laments that fintech startups lost an ally and willing banking partner when the bank went under.
Even without an international banking crisis, the life of a startup founder can be a rollercoaster. Vogel said things began looking up for Circularr a few months ago. In the fall, the company was getting ready to close on a funding round led by an Israeli investor. However, following Hamas’ attack on Israel on October 7 and the ensuing war, the investor pulled out, leaving Circularr stranded once again. “It’s been an uphill battle,” Vogel said.
