Lower than every week after the founders of tech startups in a panic ripped money out of Silicon Valley Bank, lots of them have been quietly called back, On The Money has learned.
Because the lender’s spectacular implosion, SVB bankers have been emailing depositors with enterprise loans – and warning them that in the event that they don’t return most of their money inside 10 business days, their loans will likely be called.
The issue: Last 12 months, with the IPO window closed and enterprise capital funding dried up, SVB issued a wave of high-interest enterprise loans to private tech firms that needed funding but didn’t want to dilute their capital with a downturn round or inheritance. public.
One key condition: that startups keep 80% to 85% of their funds within the SVB, sources close to the bank told The Post.
The SVB has also allowed some founders to take loans personally in exchange for his or her shares in their very own (often overvalued) start-ups, sources aware of the bank’s system told The Post.
“It is vitally unusual for a bank to allow an individual to borrow against illiquid private shares in a brand latest startup,” one tech insider told The Post. “These people weren’t borrowing money to reinvest of their business.”
As an alternative, the SVB effectively offered a way to money out before an IPO or sale, or just take “some chips off the table,” the source added.
Follow The Post’s coverage of the Silicon Valley Bank collapse
Indeed, it was these hard-to-get loans – not the incontrovertible fact that Silicon Valley Bank was down the road – that attracted so many startup founders to SVB, according to insiders.
Now many SVB customers do not need the cash to pay back their loans and are unable to get one other loan quickly, sources told The Post.
Based on skyrocketing valuations, the loans played a key role within the bank’s financial downturn as start-up valuations collapsed, the sources say.
“It was no different than the mortgage lending banks in 2008, which weren’t price what they ought to be price,” one insider told The Post. “The mortgage crisis had a house price $1 million, and bankers granted lines of credit that valued the home at $1.2 million.”
“SVB overestimated all the businesses he worked with,” adds the source. “They usually’ve been very creative in allowing founders and CEOs to money out the best way they do.”
When the businesses began to move south, “they were hit by a tsunami.”
“It’s ironic,” the source added. “In the event that they had just left the cash there, this could never have happened.”
The FDIC, the US Treasury and the Federal Reserve promised SVB depositors that their money could be returned in full. Still, many within the tech community are concerned about moving their money back.
“No one wants to keep their money in SVB now – who do you call for money?” one source caught on. “If you could have a five-year loan, will the SVB run for the subsequent five years?”
The Silicon Valley Bank didn’t respond to requests for comment.