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Garry has an incentive to say the sky is falling because the sooner this is resolved the less pain it’ll cause, but to say this is an industry extinction event

Garry has an incentive to say the sky is falling because the sooner this is resolved the less pain it’ll cause, but to say this is an industry extinction event is a stretch. Even if the extremely unlikely scenario plays out and companies are unable to make payroll, employees are very unlikely to walk out, it would make an inconvenient situation (no pay) much worse (terminated) in an already challenging economic climate. Anybody with the financial means to walk away because payroll has been missed is someone with the financial means to ride out a few weeks waiting to be paid. We will see many startups fall in the next few weeks + months, and many will attribute it to the failure of SVB, but SVB’s failure is a symptom of the broader economic environment, not a cause, and the same factors that caused SVB to fail are already hurting startups — like the difficult fundraising environment at the moment. SVB will be an easy scapegoat, “we didn’t fail, it was SVB’s fault!” Most any startup that attributes its failure to SVB’s collapse would have been dead in a few months anyway.

robbiet480 4y ago
Do keep in mind that at least in California unpaid wages are one of the only things that pierces the corporate veil, so management and investors are on the hook for them personally. editing to add citation: California Labor Code Section 558.1
- eddsh1994 4y ago
  Does that work even if the companies incorporated in Delaware?
  - stingrae 4y ago
    yes.
  - xenospn 4y ago
    Wouldn’t be very effective if it didn’t.
    - eddsh1994 4y ago
      Well an amendment in 2017 to the General Corporation Law of the State of Delaware added Section 115 which explicitly permits Delaware startups to adopt in its certificate of incorporation a requirement that all internal corporate claims are exclusively held in front of a Judge in Delaware. Several cases in California have upheld this. So it's not exactly a crazy question to ask if this would work for YC startups employees.
      - deleted 4y ago
        [deleted]
      - dragonwriter 4y ago
        Internal corporate claims are claims by the corporation against officers and shareholders with regard to their duties to the corporation. It does not apply to claims by employees against the corporation under foreign state wage and hour laws, nor could it.
        eddsh1994 4y ago
        Thanks!
    - dllthomas 4y ago
      On the one hand, of course in this case it applies. On the other hand, let's not pretend CA government doesn't sometimes pass things that aren't very effective.
  - aaomidi 4y ago
    California fortunately doesn’t give a shit.
  - bcrosby95 4y ago
    Labor law generally applies where the employee lives. Otherwise companies would just incorporate in <fucked country> and be able to do whatever they want.
  - anon291 4y ago
    Yes, Delaware has no jurisdiction over events that take place in California, or vice versa. A delaware corporation hiring an employee in California means that it is subject to the laws of California solely when it comes to its relationship with that employee.
    - deleted 4y ago
      [deleted]
- plonk 4y ago
  Is it illegal to not be able to pay wages because the company's bank melted down?
  - robbiet480 4y ago
    Reading the law with the strictest interpretation says to me (IANAL): yes
    - etothepii 4y ago
      Why wouldn't they just resign as a director in that case?
      - lovich 4y ago
        I was unaware that after having committed a crime, that you could merely resign and say it’s not your problem anymore.
        kevin_thibedeau 4y ago
        But these are elites. Can't be prosecuted if no prosecutor will bother to apply the law fairly to everyone.
        tedunangst 4y ago
        Resign on payday.
        lovich 4y ago
        I suppose if you were about to h it a pedestrian while driving your car you could always bail out and claim you weren’t in charge of the vehicle, although that might be a bad example given Tesla’s shenanigans. The government isn’t that simplistic that they’d accept that as a legal defense if they were going to enforce the law. Possibly if the executive could prove that they were defrauded by another exec or vendor with liability and they resigned as soon as they had information to that effect which coincidentally was on pay day, they could pull it off. Even then though as a corporate officer they have liability over how the company operates when they choose the people to do the job. As the other poster pointed out the liability for payroll pierces the corporate veil and that means they can’t just bail out and use the corporation as a legal shield.
- julienb_sea 4y ago
  Realistically this encourages immediate furloughs, layoffs, firing or bankruptcy proceedings. There isn't a world where the companies actually get to the stage of "unpaid wages", there are many steps they can take to avoid getting into that legal boondogle.
  - sethev 4y ago
    Normally, yes. But in this case isn't it the upcoming payroll that's the problem? That work has already been done by employees, so the wage is already on the books. If they can't come up with the money, they'll have unpaid wages no matter how many people they fire. Right?
    - Me1000 4y ago
      Sure, but then they'll just furlough or lay off everyone. So employees get one payroll paid out, but then they don't get anymore, and the company and all the economic activity it produces are gone too.
      - zuminator 4y ago
        If your company is economically unviable, it's going to eventually fold anyway; that's not the workers' fault. But if it's profitable and just has fallen temporarily behind in payroll, then it's not like it has to pay back wages all at once, it can make arrangements to pay them back over a period of weeks or months. But what it can't do is just decide not to pay people for the work they have performed. People are acting like there's some set of circumstances that makes wage theft reasonable. Situations where management forces the employees to work for free under threat of being fired are exactly why the corporate veil should be pierced in these matters.
        Me1000 4y ago
        Just because a company is unviable today doesn't mean it will be unviable a year from now, that's the whole idea behind investing. If this had happened to Google in 1999 (a year before they would eventually make money through advertisements) Google would likely not be able to make payroll, pay their server bills, or keep their office lights on. Second, even if the company is profitable, they might rely on income from other companies screwed over today. Those companies might not be able to pay their bills. If I'm Sentry, Render, Mongo, or any other number of companies that gets most of their revenue by providing services to startups, I'd be worried right now. Even big cloud providers like AWS and GCP will likely take revenue hits. Big companies can float resources while this debacle gets sorted out, but small companies cant. I'm sure there are a bunch of startups out there that had $2 million in the bank which would give them a good 18 months of runway, and are now trying to prioritize cost cutting measures to help make that initial $250k of insured deposits last as long as possible. And that's permanent lost revenue for those companies. Third, I'm not saying wage theft is reasonable (it's not), and I don't think anyone else is either. I'm simply trying to point out that piercing the veil isn't some magic bullet here. If a company has to close up shop that's probably the worst of all worlds. Employees lose their jobs with little notice and no severance, office owners need to find new tenants (in an already tough office real estate market), healthy companies seeing ripple effects start belt tightening as well. And in the event that the full (or majority of) deposits from SVB are eventually released to the bankrupt company, where do you think that money goes? Right back to the shareholders. Employees are still screwed. Piercing the veil makes sense in a typical situation where a company has gone bankrupt and they need to find a way to meet their final obligations, but it's a little more complicated in this situation. There are plenty of healthy companies that will be healthy again once the FDIC is able to release deposits.
- Me1000 4y ago
  If this happens the companies will immediately close up shop. So you get your last 2 weeks of pay then no more, no severance, nothing.
  - muzz 4y ago
    If a company wants to shoot itself in the foot like that
    - Tuna-Fish 4y ago
      If you are a director of a company facing such a situation, it's what you want to do. Because if you don't, you become personally liable for the missed payroll. Do you want to close up shop and say "this startup died because of SVB, on to start another one", but keep your car and your house, or do you want to risk losing literally everything you own and then end up with loads of new debt on top of that.
      - muzz 4y ago
        Depends if you think the eventual outcome is worth more. People used to second-mortgage their house to start small businesses where the best-case payoff is much less than these tech companies-- some of which are apparently the next Google or Facebook according to the head of YC on CNBC yesterday
  - Alex3917 4y ago
    > If this happens the companies will immediately close up shop. If their bank accounts get frozen for a week, they'll just lay everyone off and then hire them all back a week later with a signing bonus to cover their missed days. No one is going to permanently shut down their company because their bank is closed for a couple days. Maybe a few lucky executives will accidentally get their vesting accelerated, and a few startups that were on the brink of collapsing anyway might be pushed over the edge, but beyond that life will go on as usual.
  - smugma 4y ago
    As Garry wrote, companies would furlough before closing up shop. You get your paycheck, and then you're told you're furloughed until FDIC does their thing. This protects the company and the founders. This may be better or worse for workers than being laid off.
gordon_freeman 4y ago
[flagged]
woodruffw 4y ago
Excellently said. On top of that: there is no meaningful risk that these startups will not be made whole in the coming weeks. Given the absence of risk, there will be plenty of lenders competing to provide these companies with liquidity for a relatively small slice of the pie, should it even come to that.
- sp332 4y ago
  To be clear, you think the FDIC will be able to sell enough bank assets to cover 100% of deposits?
  - woodruffw 4y ago
    No, I think they'll recover a large percentage of it, and that the difference won't matter.
    - Danieru 4y ago
      I don't think "being made whole" means what you think it means.
      - JohnFen 4y ago
        The FDIC will cover the portion that they couldn't recover from bank assets. The depositors will be made whole (up to $250k), but it may take some taxpayer money to do that.
        deleted 4y ago
        [deleted]
        Danieru 4y ago
        The subject of OP's post is the non-insured deposits. No one, yet, has expressed doubt on the credit of the FDIC. Sub 10% of SVB's deposits were insured. Meanwhile SVB's HTM bonds have taken a 20%+ loss which will, barring an acquisition, cause non-insured deposits to take a 19%+ haircut. Combined with an indeterminate period of waiting. So start ups with cash in SVB should expect to lose 20% and find alternative sources to make payroll, pay payroll taxes, and pay suppliers. I expect we will see many startups close us shop when founders are unwilling to bail out their own company's balance sheet with personal money.
kweingar 4y ago
> Even if the extremely unlikely scenario plays out and companies are unable to make payroll, employees are very unlikely to walk out, it would make an inconvenient situation (no pay) much worse (terminated) in an already challenging economic climate. Anybody with the financial means to walk away because payroll has been missed is someone with the financial means to ride out a few weeks waiting to be paid. Even if employees don’t walk out, they can file a wage claim and collect penalties. Any retaliation for filing a wage claim is illegal and would result in more penalties.
- bombcar 4y ago
  FDIC isn't stupid; they're issuing IOUs and these companies can borrow against the IOUs. It's not like this is a minor bank failure; everyone knows about it.
  - sp332 4y ago
    They're going to send out some money this week, but the value of the IOUs will depend on how much they can sell the bank's assets for. Certainly less than face value. It's going to be hard to borrow against that.
    - bombcar 4y ago
      I don't think anyone think's that all the money is gone, so borrowing $1m against $100m IOU shouldn't be a major issue.
    - kragen 4y ago
      this week ends in 34 hours, so this is unlikely the ious are actually receiver's certificates, and as i understand it, borrowing against receiver's certificates is a commonplace thing to do in cases like this
    - favorited 4y ago
      > Certainly less than face value Their assets were higher than their liabilities. This is a liquidity problem, not a solvency problem. Everyone got their money from Lehman Brothers, and everyone will get their money from SVB. But not everyone is going to get it right away, because it is invested.
stingrae 4y ago
> Even if the extremely unlikely scenario plays out and companies are unable to make payroll, employees are very unlikely to walk out, it would make an inconvenient situation (no pay) much worse (terminated) in an already challenging economic climate. I don't understand how you can say this is an unlikely scenario. It is very likely, because a large number of startups are using one bank and that 250k won't cover much of their burn rate. It also puts you in a terrible position to raise bridge rounds and other financing. Every investor and lender isn't incentivized to give good terms.
- phphphphp 4y ago
  You’re conflating the amount insured and the amount that will be recovered. SVB has failed as a bank, it hasn’t failed as a place to have money. The money still exists, and while there’s a hole created by recovering immediate access to that money, it represents a very small haircut — maybe a few percentage points for each customer.
  - landemva 4y ago
    > The money still exists No, part of it disappeared when the long-term bonds were sold for a loss. That money hole is why SVB was closed today.
  - stingrae 4y ago
    sure it may (in the long term) be a few percentage points of a loss. The problem is the timeline on which you get access to it. If you are a larger company, 250k won't cover much of your payroll. No banks are going to rush to buy these low interest securities unless they get a steep discount.
    - phphphphp 4y ago
      A company spending millions of dollars per year on payroll will have the relationships necessary to weather a storm like this. SVB made some very poor investment decisions but they didn’t light the money on fire: it’s not going to take years to liquidate. There is huge upside opportunity for buyers of assets from a distressed bank: the assets are worth less than what SVB paid (hence the crisis) but are not worthless. We will have to wait and see, and perhaps my optimism is naive, but I struggle to see a situation in which these remaining assets can’t be liquidated in the coming weeks. Even pre-crisis, SVB held less than $200bn — that’s a small amount of money in the context of the US banking system. Apple alone has, what, $100bn?
te_chris 4y ago
SVB’s failure is only a symptom of the wider environment in as much as it failed because of a focus on handshakes over proper management. The comments on the FT are illuminating: bankers can’t understand how they didn’t hedge for interest rate risk.
- disgruntledphd2 4y ago
  As Michael O'Church often said, the VCs and (SV finance more generally) are the people who couldn't make it in investment banking or private equity Mind you, the FT comment section is always full of people who predicted stuff like this, rather like the comments on breaches around here.
JumpCrisscross 4y ago
> will see many startups fall in the next few weeks + months A lot of start-ups avoiding down rounds just got a great excuse to raise operating capital under the veil of liquidity.
- d136o 4y ago
  Wonder if any of the SVB owned private equity or debt will be sold off or marked down because of all this.
  - Asparagirl 4y ago
    Gonna be some new faces at some board meetings soon! And by new I mean a buncha old guys from Wall Street or private equity who are going to buy a seat at some “disruptors” and then explain how things are going to work now.
the_gipsy 4y ago
> Anybody with the financial means to walk away because payroll has been missed is someone with the financial means to ride out a few weeks waiting to be paid. I agree with the rest of your comment, but not the implication of this sentence. Riding out not getting payed is extremely risky with very low to no reward. Those that could ride it out are much better off quitting and making use of their time for interviewing - or anything but working for free.
- anon291 4y ago
  Yeah, I have years worth of runway and could probably retire if I wanted to live a more frugal lifestyle, but I don't work if I'm not getting paid period.
- icedchai 4y ago
  Yep. I didn't get paid for a month once and road it out. I did get paid eventually, but in retrospect, I should've just left. There were bigger troubles down the line.
  - JohnFen 4y ago
    This. A company being unable to make payroll, even only one time, is a pretty huge flashing warning light that the company is very close to the edge of a cliff.
jonahbenton 4y ago
Smells like blame shifting to me. He shouted the sky is falling. Maybe it was, maybe it wasn't. SVB was a pretty big bank and was clear in its representations. Maybe he shouldn't have played Chicken Little, initiating the precise scenario the bank warned against.
- muzz 4y ago
  I wonder if he even realizes what much of the rest of America _already_ thinks of Silicon Valley, and how much more he damaged the perception of SV / YC by basically asking for a government bailout while the ink was still wet and before any payrolls etc were missed (and which may not even happen)
batmansmk 4y ago
In 2008, when startups started to fail, many colleagues left to work for large old established firms. Some others left banking on ne started new ventures. Turnover accelerated. If we go through an event of the same magnitude, the economy and people will adapt, because history taught us so.
- muzz 4y ago
  I don't doubt your claim, but in retrospect that was the best time to join a startup
justinzollars 4y ago
> Even if the extremely unlikely scenario plays out and companies are unable to make payroll Likely event. 30% of YC companies will not make payroll in the next 30 days. Their bank accounts literally went to zero today.
phkahler 4y ago
>> Anybody with the financial means to walk away because payroll has been missed is someone with the financial means to ride out a few weeks waiting to be paid. Everyone should maintain the ability to miss a few paychecks. And everyone should know to start a job search the moment a company misses payroll or even looks like it might.
ryanSrich 4y ago
> ride out a few weeks waiting to be paid. Or several months, if not years. If SVB isn't bought by Monday those funds are going to be inaccessible for much longer than people realize.
muzz 4y ago
He really lost a lot of respect from these tweets

robbiet480 4y ago

Do keep in mind that at least in California unpaid wages are one of the only things that pierces the corporate veil, so management and investors are on the hook for them personally. editing to add citation: California Labor Code Section 558.1

eddsh1994 4y ago
Does that work even if the companies incorporated in Delaware?
- stingrae 4y ago
  yes.
- xenospn 4y ago
  Wouldn’t be very effective if it didn’t.
  - eddsh1994 4y ago
    Well an amendment in 2017 to the General Corporation Law of the State of Delaware added Section 115 which explicitly permits Delaware startups to adopt in its certificate of incorporation a requirement that all internal corporate claims are exclusively held in front of a Judge in Delaware. Several cases in California have upheld this. So it's not exactly a crazy question to ask if this would work for YC startups employees.
    - deleted 4y ago
      [deleted]
    - dragonwriter 4y ago
      Internal corporate claims are claims by the corporation against officers and shareholders with regard to their duties to the corporation. It does not apply to claims by employees against the corporation under foreign state wage and hour laws, nor could it.
      - eddsh1994 4y ago
        Thanks!
  - dllthomas 4y ago
    On the one hand, of course in this case it applies. On the other hand, let's not pretend CA government doesn't sometimes pass things that aren't very effective.
- aaomidi 4y ago
  California fortunately doesn’t give a shit.
- bcrosby95 4y ago
  Labor law generally applies where the employee lives. Otherwise companies would just incorporate in <fucked country> and be able to do whatever they want.
- anon291 4y ago
  Yes, Delaware has no jurisdiction over events that take place in California, or vice versa. A delaware corporation hiring an employee in California means that it is subject to the laws of California solely when it comes to its relationship with that employee.
  - deleted 4y ago
    [deleted]
plonk 4y ago
Is it illegal to not be able to pay wages because the company's bank melted down?
- robbiet480 4y ago
  Reading the law with the strictest interpretation says to me (IANAL): yes
  - etothepii 4y ago
    Why wouldn't they just resign as a director in that case?
    - lovich 4y ago
      I was unaware that after having committed a crime, that you could merely resign and say it’s not your problem anymore.
      - kevin_thibedeau 4y ago
        But these are elites. Can't be prosecuted if no prosecutor will bother to apply the law fairly to everyone.
      - tedunangst 4y ago
        Resign on payday.
        lovich 4y ago
        I suppose if you were about to h it a pedestrian while driving your car you could always bail out and claim you weren’t in charge of the vehicle, although that might be a bad example given Tesla’s shenanigans. The government isn’t that simplistic that they’d accept that as a legal defense if they were going to enforce the law. Possibly if the executive could prove that they were defrauded by another exec or vendor with liability and they resigned as soon as they had information to that effect which coincidentally was on pay day, they could pull it off. Even then though as a corporate officer they have liability over how the company operates when they choose the people to do the job. As the other poster pointed out the liability for payroll pierces the corporate veil and that means they can’t just bail out and use the corporation as a legal shield.
julienb_sea 4y ago
Realistically this encourages immediate furloughs, layoffs, firing or bankruptcy proceedings. There isn't a world where the companies actually get to the stage of "unpaid wages", there are many steps they can take to avoid getting into that legal boondogle.
- sethev 4y ago
  Normally, yes. But in this case isn't it the upcoming payroll that's the problem? That work has already been done by employees, so the wage is already on the books. If they can't come up with the money, they'll have unpaid wages no matter how many people they fire. Right?
  - Me1000 4y ago
    Sure, but then they'll just furlough or lay off everyone. So employees get one payroll paid out, but then they don't get anymore, and the company and all the economic activity it produces are gone too.
    - zuminator 4y ago
      If your company is economically unviable, it's going to eventually fold anyway; that's not the workers' fault. But if it's profitable and just has fallen temporarily behind in payroll, then it's not like it has to pay back wages all at once, it can make arrangements to pay them back over a period of weeks or months. But what it can't do is just decide not to pay people for the work they have performed. People are acting like there's some set of circumstances that makes wage theft reasonable. Situations where management forces the employees to work for free under threat of being fired are exactly why the corporate veil should be pierced in these matters.
      - Me1000 4y ago
        Just because a company is unviable today doesn't mean it will be unviable a year from now, that's the whole idea behind investing. If this had happened to Google in 1999 (a year before they would eventually make money through advertisements) Google would likely not be able to make payroll, pay their server bills, or keep their office lights on. Second, even if the company is profitable, they might rely on income from other companies screwed over today. Those companies might not be able to pay their bills. If I'm Sentry, Render, Mongo, or any other number of companies that gets most of their revenue by providing services to startups, I'd be worried right now. Even big cloud providers like AWS and GCP will likely take revenue hits. Big companies can float resources while this debacle gets sorted out, but small companies cant. I'm sure there are a bunch of startups out there that had $2 million in the bank which would give them a good 18 months of runway, and are now trying to prioritize cost cutting measures to help make that initial $250k of insured deposits last as long as possible. And that's permanent lost revenue for those companies. Third, I'm not saying wage theft is reasonable (it's not), and I don't think anyone else is either. I'm simply trying to point out that piercing the veil isn't some magic bullet here. If a company has to close up shop that's probably the worst of all worlds. Employees lose their jobs with little notice and no severance, office owners need to find new tenants (in an already tough office real estate market), healthy companies seeing ripple effects start belt tightening as well. And in the event that the full (or majority of) deposits from SVB are eventually released to the bankrupt company, where do you think that money goes? Right back to the shareholders. Employees are still screwed. Piercing the veil makes sense in a typical situation where a company has gone bankrupt and they need to find a way to meet their final obligations, but it's a little more complicated in this situation. There are plenty of healthy companies that will be healthy again once the FDIC is able to release deposits.
Me1000 4y ago
If this happens the companies will immediately close up shop. So you get your last 2 weeks of pay then no more, no severance, nothing.
- muzz 4y ago
  If a company wants to shoot itself in the foot like that
  - Tuna-Fish 4y ago
    If you are a director of a company facing such a situation, it's what you want to do. Because if you don't, you become personally liable for the missed payroll. Do you want to close up shop and say "this startup died because of SVB, on to start another one", but keep your car and your house, or do you want to risk losing literally everything you own and then end up with loads of new debt on top of that.
    - muzz 4y ago
      Depends if you think the eventual outcome is worth more. People used to second-mortgage their house to start small businesses where the best-case payoff is much less than these tech companies-- some of which are apparently the next Google or Facebook according to the head of YC on CNBC yesterday
- Alex3917 4y ago
  > If this happens the companies will immediately close up shop. If their bank accounts get frozen for a week, they'll just lay everyone off and then hire them all back a week later with a signing bonus to cover their missed days. No one is going to permanently shut down their company because their bank is closed for a couple days. Maybe a few lucky executives will accidentally get their vesting accelerated, and a few startups that were on the brink of collapsing anyway might be pushed over the edge, but beyond that life will go on as usual.
- smugma 4y ago
  As Garry wrote, companies would furlough before closing up shop. You get your paycheck, and then you're told you're furloughed until FDIC does their thing. This protects the company and the founders. This may be better or worse for workers than being laid off.

gordon_freeman 4y ago

[flagged]

woodruffw 4y ago

Excellently said. On top of that: there is no meaningful risk that these startups will not be made whole in the coming weeks. Given the absence of risk, there will be plenty of lenders competing to provide these companies with liquidity for a relatively small slice of the pie, should it even come to that.

sp332 4y ago
To be clear, you think the FDIC will be able to sell enough bank assets to cover 100% of deposits?
- woodruffw 4y ago
  No, I think they'll recover a large percentage of it, and that the difference won't matter.
  - Danieru 4y ago
    I don't think "being made whole" means what you think it means.
    - JohnFen 4y ago
      The FDIC will cover the portion that they couldn't recover from bank assets. The depositors will be made whole (up to $250k), but it may take some taxpayer money to do that.
      - deleted 4y ago
        [deleted]
      - Danieru 4y ago
        The subject of OP's post is the non-insured deposits. No one, yet, has expressed doubt on the credit of the FDIC. Sub 10% of SVB's deposits were insured. Meanwhile SVB's HTM bonds have taken a 20%+ loss which will, barring an acquisition, cause non-insured deposits to take a 19%+ haircut. Combined with an indeterminate period of waiting. So start ups with cash in SVB should expect to lose 20% and find alternative sources to make payroll, pay payroll taxes, and pay suppliers. I expect we will see many startups close us shop when founders are unwilling to bail out their own company's balance sheet with personal money.

kweingar 4y ago

> Even if the extremely unlikely scenario plays out and companies are unable to make payroll, employees are very unlikely to walk out, it would make an inconvenient situation (no pay) much worse (terminated) in an already challenging economic climate. Anybody with the financial means to walk away because payroll has been missed is someone with the financial means to ride out a few weeks waiting to be paid. Even if employees don’t walk out, they can file a wage claim and collect penalties. Any retaliation for filing a wage claim is illegal and would result in more penalties.

bombcar 4y ago
FDIC isn't stupid; they're issuing IOUs and these companies can borrow against the IOUs. It's not like this is a minor bank failure; everyone knows about it.
- sp332 4y ago
  They're going to send out some money this week, but the value of the IOUs will depend on how much they can sell the bank's assets for. Certainly less than face value. It's going to be hard to borrow against that.
  - bombcar 4y ago
    I don't think anyone think's that all the money is gone, so borrowing $1m against $100m IOU shouldn't be a major issue.
  - kragen 4y ago
    this week ends in 34 hours, so this is unlikely the ious are actually receiver's certificates, and as i understand it, borrowing against receiver's certificates is a commonplace thing to do in cases like this
  - favorited 4y ago
    > Certainly less than face value Their assets were higher than their liabilities. This is a liquidity problem, not a solvency problem. Everyone got their money from Lehman Brothers, and everyone will get their money from SVB. But not everyone is going to get it right away, because it is invested.

stingrae 4y ago

> Even if the extremely unlikely scenario plays out and companies are unable to make payroll, employees are very unlikely to walk out, it would make an inconvenient situation (no pay) much worse (terminated) in an already challenging economic climate. I don't understand how you can say this is an unlikely scenario. It is very likely, because a large number of startups are using one bank and that 250k won't cover much of their burn rate. It also puts you in a terrible position to raise bridge rounds and other financing. Every investor and lender isn't incentivized to give good terms.

phphphphp 4y ago
You’re conflating the amount insured and the amount that will be recovered. SVB has failed as a bank, it hasn’t failed as a place to have money. The money still exists, and while there’s a hole created by recovering immediate access to that money, it represents a very small haircut — maybe a few percentage points for each customer.
- landemva 4y ago
  > The money still exists No, part of it disappeared when the long-term bonds were sold for a loss. That money hole is why SVB was closed today.
- stingrae 4y ago
  sure it may (in the long term) be a few percentage points of a loss. The problem is the timeline on which you get access to it. If you are a larger company, 250k won't cover much of your payroll. No banks are going to rush to buy these low interest securities unless they get a steep discount.
  - phphphphp 4y ago
    A company spending millions of dollars per year on payroll will have the relationships necessary to weather a storm like this. SVB made some very poor investment decisions but they didn’t light the money on fire: it’s not going to take years to liquidate. There is huge upside opportunity for buyers of assets from a distressed bank: the assets are worth less than what SVB paid (hence the crisis) but are not worthless. We will have to wait and see, and perhaps my optimism is naive, but I struggle to see a situation in which these remaining assets can’t be liquidated in the coming weeks. Even pre-crisis, SVB held less than $200bn — that’s a small amount of money in the context of the US banking system. Apple alone has, what, $100bn?

te_chris 4y ago

SVB’s failure is only a symptom of the wider environment in as much as it failed because of a focus on handshakes over proper management. The comments on the FT are illuminating: bankers can’t understand how they didn’t hedge for interest rate risk.

disgruntledphd2 4y ago
As Michael O'Church often said, the VCs and (SV finance more generally) are the people who couldn't make it in investment banking or private equity Mind you, the FT comment section is always full of people who predicted stuff like this, rather like the comments on breaches around here.

JumpCrisscross 4y ago

> will see many startups fall in the next few weeks + months A lot of start-ups avoiding down rounds just got a great excuse to raise operating capital under the veil of liquidity.

d136o 4y ago
Wonder if any of the SVB owned private equity or debt will be sold off or marked down because of all this.
- Asparagirl 4y ago
  Gonna be some new faces at some board meetings soon! And by new I mean a buncha old guys from Wall Street or private equity who are going to buy a seat at some “disruptors” and then explain how things are going to work now.

the_gipsy 4y ago

> Anybody with the financial means to walk away because payroll has been missed is someone with the financial means to ride out a few weeks waiting to be paid. I agree with the rest of your comment, but not the implication of this sentence. Riding out not getting payed is extremely risky with very low to no reward. Those that could ride it out are much better off quitting and making use of their time for interviewing - or anything but working for free.

anon291 4y ago
Yeah, I have years worth of runway and could probably retire if I wanted to live a more frugal lifestyle, but I don't work if I'm not getting paid period.
icedchai 4y ago
Yep. I didn't get paid for a month once and road it out. I did get paid eventually, but in retrospect, I should've just left. There were bigger troubles down the line.
- JohnFen 4y ago
  This. A company being unable to make payroll, even only one time, is a pretty huge flashing warning light that the company is very close to the edge of a cliff.

jonahbenton 4y ago

Smells like blame shifting to me. He shouted the sky is falling. Maybe it was, maybe it wasn't. SVB was a pretty big bank and was clear in its representations. Maybe he shouldn't have played Chicken Little, initiating the precise scenario the bank warned against.

muzz 4y ago
I wonder if he even realizes what much of the rest of America _already_ thinks of Silicon Valley, and how much more he damaged the perception of SV / YC by basically asking for a government bailout while the ink was still wet and before any payrolls etc were missed (and which may not even happen)

batmansmk 4y ago

In 2008, when startups started to fail, many colleagues left to work for large old established firms. Some others left banking on ne started new ventures. Turnover accelerated. If we go through an event of the same magnitude, the economy and people will adapt, because history taught us so.

muzz 4y ago
I don't doubt your claim, but in retrospect that was the best time to join a startup

justinzollars 4y ago

> Even if the extremely unlikely scenario plays out and companies are unable to make payroll Likely event. 30% of YC companies will not make payroll in the next 30 days. Their bank accounts literally went to zero today.

phkahler 4y ago

>> Anybody with the financial means to walk away because payroll has been missed is someone with the financial means to ride out a few weeks waiting to be paid. Everyone should maintain the ability to miss a few paychecks. And everyone should know to start a job search the moment a company misses payroll or even looks like it might.

ryanSrich 4y ago

> ride out a few weeks waiting to be paid. Or several months, if not years. If SVB isn't bought by Monday those funds are going to be inaccessible for much longer than people realize.

muzz 4y ago

He really lost a lot of respect from these tweets