(Reuters) – A wave of relief washed over Silicon Valley on Sunday after a tense weekend marked by emergency funding programs and calls for help after regulators stepped in to support SVB Bank, which specializes in financing technology startups.
Account holders at a Silicon Valley bank that closed Friday will receive their funds on Monday, banking regulators said late Sunday, allaying fears that startups will struggle to pay employees this week. The bank shutdown followed interest rate hikes that hit tech start-ups and failed capital raises, which triggered a run of withdrawals.
A joint report by U.S. government agencies, including the Treasury Department and the Federal Reserve, indicated that taxpayers would not bear any of the costs associated with the new projects surrounding the Silicon Valley bank. However, shareholders and some unsecured creditors may not receive the same government protections.
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Despite the relief, there are still doubts about the funding environment for startups, which has received SVB’s support as big banks shun the segment. SVB did not find a buyer until Sunday, which will give the sector more confidence.
“This is a big step in restoring confidence in the startup community. Before, many startups would have planned emergency measures leading to more layoffs. These measures provided much-needed reassurance that everyone will be able to meet paychecks on Monday,” said John Sakoda, founder of early-stage development firm Decibel Partners.
Sam Altman, who runs OpenAI, known for its ChatGBT artificial intelligence software, was among those who responded to calls for help, providing emergency funding to startups facing uncertainty over paying employees, Reuters reported on Sunday.
Tech investor Ashish Birla has been working around the clock for the past three days, advising companies on how to handle wages or encouraging people to lobby politicians for support. The executive was satisfied with the US government’s decision to support the bank’s account holders.
“Companies don’t have to worry about whether their money is safe or not,” he said.
Birla predicts a huge rush by startups to open accounts with big banks in the coming days. And for companies with significant cash reserves, he thinks there will be a wave of interest in hiring finance professionals to reduce the amount of cash they hold.
Silicon Valley Bank has so far been a reliable source of funding for startups compared to other banks.
Rad AI chief executive Dr Gurson said news of SVB’s intervention was a “collective sigh” after concerns about pay at his startup, which employs about 65 people. “I lost a few years of my life over the weekend to be honest. It’s been a roller coaster ride.
Still, the story is far from over. While Rad AI plans to move money to new accounts at major banks, it’s unclear when it will be able to access all of its SVB features, he said.
“I don’t know if there’s anywhere safe to go,” he said. “I’m still a little nervous about what’s going to happen.”
(By Crystal Hu and Anna Tong and Jeffrey Dustin and Greg Benzinger)
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