Four days of panic: How startup execs navigated SVB’s meltdown and prepared for the worst

After turning on CNBC last Thursday to see SVB’s stock price getting hammered and news of venture firms urging startups to hit the exits, EarthOptics CEO Lars Dyrud acted quickly. At 4 p.m. ET, he requested a $25 million wire transfer from Silicon Valley Bank, representing roughly 90% of his company’s deposits.

It was too late. EarthOptics didn’t get a response on Thursday, and the following day SVB was seized by regulators in the second-largest bank failure in U.S. history. Dyrud had no idea when he’d be able to access his company’s deposits, as the Federal Deposit Insurance Corp. only guarantees $250,000 per client.

Like thousands of SVB customers, Dyrud was most immediately worried about missing payroll for March 15, which was just a few days away. He spent all day Friday and the weekend devising an emergency plan that centered around a $1 million loan from three board members, including from one investor who would be wiring funds to BambooHR, the company’s paycheck processor.

“We started planning to be without cash for nine months,” said Dyrud, in an interview Tuesday. “We had four plans in place in priority order in case something went wrong.”

Dyrud sent a Slack message to his employees late last week, updating them on the situation.

“We ultimately expect to be made whole but need to prepare for alternate access to cash while this is sorted,” Dyrud wrote in the memo, which he shared with CNBC.

SVB’s speedy collapse sent shock waves across Silicon Valley as the failure of the preeminent bank for venture-backed startups threatened to indefinitely freeze access to the money companies need to pay their staff, vendors and partners, while also destabilizing the banking system.

According to California regulators, investors and depositors withdrew $42 billion from SVB by the end of Thursday after the bank said it was selling $21 billion worth of securities at a loss and trying to raise additional capital. Dyrud feared at the time that it would be the fastest bank run the country has ever seen due to the nature of the clientele and the speed with which information travels.

On Friday afternoon, Dyrud went with his chief administrative officer and controller to a local Wells Fargo branch, in Arlington, Virginia, to open a new account. It was the only bank that would open a same-day account for his 75-person startup, whose technology is used by agricultural companies and farmers to measure the health of their soil.

That evening, Dyrud held a 45-minute board meeting over Zoom to make sure everyone was aware of the gameplan and the loan arrangement, which was structured as an unsecured promissory note. Dyrud said he was on the phone 12 hours a day, starting Thursday.

Four days of panic finally came to an end late Sunday, when regulators announced a plan to backstop deposits and ensure that all clients would be able to retrieve their money starting Monday.

By early this week, EarthOptics had its cash safely in Wells Fargo and was repaying two investors for the loans. Dyrud said he was able to call off the loan from the third investor before the money was sent.

“It was the most heavily negotiated two-day loan ever,” Dyrud said.

Otter.ai founder and CEO Sam Liang spent Monday driving to SVB branches in Silicon Valley to try and retrieve millions of dollars of his company’s money.

Liang said the company, whose software transcribes audio from meetings and interviews, tried to initiate a transfer Thursday night, but it never went through.

“We were pretty worried over the weekend, watching the news all the time,” Liang said, in an interview on Monday from the parking lot of the SVB branch in Menlo Park, California. “I checked Google like 20 times an hour, watched [Treasury Secretary Janet] Yellen talking about not bailing out Silicon Valley Bank.”

He woke up at 7 a.m. on Monday and tried logging into his account, but kept getting error messages because the system was overloaded. That’s when he got in his car.

“I figured, OK I’ll just go to an office physically,” Liang said. “I went to the Palo Alto office first. There was a line there, but a guy said they couldn’t do much. I drove from the Palo Alto office to the Menlo Park office.” At that branch, Liang said he waited between 90 minutes and two hours for help.

Liang said he’s lucky that a few months earlier Otter, which has about 100 employees, had moved the majority of its money to another bank, though he didn’t say why. Still, he said the company had a lot of money in SVB — in the millions of dollars, but less than $10 million — which would represent “a huge damage” if it disappeared.

“We need to make sure payroll and everything works,” Liang said.

He wasn’t able to get a hold of all of his money right away, though he’s confident it’s all available following the plan announced by regulators on Sunday.

“I just got a cashier’s check,” he said. “They couldn’t give us everything so they gave us a percentage of the money. We have to do it again probably later today.”

Meanwhile, as clients plotted their next move, SVB’s newly appointed leader sent out a plea for customers to come back home.

Tim Mayopoulos, who was appointed by the FDIC as CEO of the bank, now called Silicon Valley Bridge Bank, emailed customers to tell them that SVB is open for business and ready to receive and hold deposits.

“The number one thing you can do to support the future of this institution is to help us rebuild our deposit base, both by leaving deposits with Silicon Valley Bridge Bank and transferring back deposits that left over the last several days,” Mayopoulos wrote in an email that was also posted on the company’s website.

Liang said Otter opened accounts at two larger banks over the weekend and will “distribute money over multiple banks.”

Dyrud has a similar plan. For now, all of EarthOptics’ cash is parked at Wells Fargo, but he said the company will soon spread some of it to JPMorgan Chase and one other bank.

“It just makes sense,” Dyrud said. “We wouldn’t have been in this position had we had even a second account.”

Dyrud traveled from Washington, D.C., where he’s based, to San Francisco for a conference this week. Dyrud said he’d never done business with SVB prior to running EarthOptics, but he’s spoken with people at the event who have much longer and deeper ties to the bank through venture debt arrangements and other types of financing.

“There are some that are more loyal than I,” he said.

Glaser is founder and CEO of Grabango, a developer of checkout-free shopping technology. He’s a longtime Bay Area technologist, having co-founded Pandora in 2000.

Grabango was more limited than some other companies in how it could respond to the SVB crisis because of the terms of its agreement with the bank. Grabango counts on the bank for a venture debt line, which includes a provision that forbids the company from doing much banking with other institutions.

That exclusivity created a huge headache for Glaser over the weekend. He wasn’t sure how he’d be able to come up with the funds needed to meet March 15 payroll without breaching his company’s covenant with SVB. And nobody was picking up the phone at the bank to tell him it was OK, or alternatively, to help him get an additional short-term loan from SVB.

“I was definitely scrambling with my team and investors to line up alternatives,” Glaser said. “There was never a moment where I thought we’d lose our deposits, but it was definitely a liquidity crunch. Would we have money and time to make payroll?”

Glaser said he was communicating all weekend with his investors and lawyers from Orrick, Herrington & Sutcliffe. They were discussing all possible contingencies and trying to determine if there were any emergency funding options to pay the company’s 110 staffers without potentially breaking the terms of its SVB contract. That could’ve involved “me funding payroll personally” or “one of our investors leaning in,” he said.

Ultimately, Glaser was relieved of having to make a tough decision. All of Grabango’s cash at the bank, which totals in the double-digits millions, would be available by Monday, in time for the company to transfer money to its payment service provider and meet payroll by Wednesday.

Not that it was smooth sailing on Monday, when Glaser was among the many SVB clients trying to get everything back up and running. The bank’s tech system wasn’t prepared for the onslaught.

“I’m on the SVB website and I felt a little like a teenager trying to buy Taylor Swift tickets,” Glaser said,

Despite the madness that spanned Thursday to Monday, Glaser is now more confident than ever with his banking situation. Prior to the run on SVB, Grabango’s deposits weren’t protected. Now they are, under the government’s action to protect depositors, whether insured or uninsured.

Grabango even pulled down an extra credit line with SVB this week, giving the company more access to capital for its hardware business.

“I think the world will diversify more going forward,” Glaser said. “But at the moment, as long as Silicon Valley Bridge Bank is 100% federally guaranteed, there’s no need to diversify. There’s no safer place to be.”

— CNBC’s Rebecca Smith contributed to this report

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