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Roderick de Rode saw this message about ‘maintenance’ last weekend when he tried to access the Silicon Valley Bank (SVB) website. The entrepreneur was unable to access the millions of dollars in his SVB account. Money intended to pay bills and salaries for his Los Angeles tech company Spinn.
In recent days it felt as if he was “at the checkout of the supermarket and could not pay for the groceries,” says De Rode, who developed an advanced coffee machine in the Netherlands and brought it to Silicon Valley. “It was extremely stressful: if you don’t have access to your money, that is the death blow for your company.”
Until recently, SVB – a bank from San Francisco – was the house bank of half of all American start-ups. The bank specialized in loans to these types of young, fast-growing tech companies. Due to their risky business model, with high costs and little or no profit, they often do not get a loan from other banks. SVB offered start-ups attractive interest rates and in return was given the right to invest in those companies themselves.
Last week it came out that the bank had to absorb large losses with failed investments. SVB succumbed before the weekend, after customers massively withdrew their money from the bank. When other banks then also threatened to collapse, the US government intervened by guaranteeing customers their balances there. Since then, entrepreneurs have been able to access their money again.
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Roderick de Rode has also been able to log in to his SVB account again since Monday. It marked the end of a string of sleepless nights, days of phone calls, and relentless social media study.
The panic started for De Rode on Thursday morning, after the well-known tech investor Peter Thiel had called on his start-ups to withdraw their money from SVB. “Then messages from other entrepreneurs poured in,” says De Rode by telephone from Los Angeles. “Take your money away! Take your money away!”
That same evening, De Rode tried to transfer money from SVB to other accounts. “But it didn’t arrive.” After that, I couldn’t log in at all. “It was total force majeure. My business came to a standstill.”
Locking away millions
Dutch tech investor Alain le Loux, partner in venture capitalist Cottonwood – was slightly more fortunate. The Texan tech company Infinitum Electric – in which Cottonwood has a substantial interest – had deposited 23 million dollars with SVB, says Le Loux. On Thursday, the company was able to “move away” another 20 million euros, he says.
The situation was critical; without money, a company can do nothing. Infinitum Electric, which builds high-tech motors for industry, would no longer be able to order parts and would have to halt all activities. In the US this can have direct consequences, Le Loux knows: “Here, salaries are paid on a weekly basis. Employees in this sector will go straight if they don’t get their money for a week.”
That same Thursday, entrepreneurs and their lenders withdrew $42 billion in assets from SVB, about 20 percent of the bank’s deposits. A bank run this magnitude has never been seen before in history. Anyone who came a day later was already too late. The enraged entrepreneurs who came to an SVB office in California for a story, found a closed door.
How could it go so fast?
Social media appears to have played an important role. At 11 a.m. on Thursday morning, the Bloomberg news agency announced that Peter Thiel had called on ‘his’ entrepreneurs to withdraw their money from SVB. Around noon, venture capitalists – who make a lot of noise on Twitter anyway – made the news bigger and bigger. The fact that SVB’s systems became overloaded as a result led to even more panic.
Calm only returned after the guarantee from the US government last weekend. “Everyone knew: this is not going to let the government simmer,” says Le Loux. “The question now is mainly: will it stay here, or will it continue?”
With the banking crisis of 2008 still in mind, many of the start-ups that banked at SVB are now opting for security. They move to a large bank, which, according to the entrepreneurs involved, will always be bailed out by the government because of their size and importance to the monetary system.
So is Roderick de Rode. He says that when he walked into JPMorgan Chase on Saturday, “the red carpet was rolled out” for him. The bankers had just had a meeting that morning, during which it was said that many new tech customers could come their way. “There was a whole delegation. Even the vice president of the bank was called in. Everything was arranged immediately.”
Can we still learn something from the events surrounding SVB? Le Loux and De Rode think so. They mainly point to the banks, not to the tech sector. “More control,” says De Rode resolutely when asked that question. “Or maybe a tech company should come up with a new way of banking, where these kinds of bank runs cannot happen. I don’t know.”