this is probably predominately California, so no; employees owed back wages are top-line creditors but not contractually owed interest. Not sure about other jurisdictions, and they could always pursue legal action.
The company I work for only said our next payroll is safe. The rest of the statement was wordy without saying much which is a pretty big red flag to me. Here's hoping we didn't lose the entire extension round we just raised.
I made the mistake of doing this once and never again. I ended up deferring almost $20k into stock that never became worth anything. The company went under and I was so low on the list of people getting paid that I got literally $0.
Additionally, salaries are usually paid in arrears, which means you already did the work when payday comes so if it does not and you keep on working you're actually going deeper into the red.
The story of the one time it was almost used. I saw that the direct deposit was an incorrect amount. I communicated the issue and did not go in to work as usual. Turns out it was a payroll error that affected literally everyone. It was swiftly corrected, and I went in late. It did just end up being a one time mistake at that employer.
It was many years ago, but I vaguely remember I was hoping they really messed up so I could go to the beach or something.
When you are a startup, a typical model is you deposit $2mm or $4mm or whatever of VC money and spend it down. You are a brand new company with no income and a bunch of money. You trip all their fraud flags, and all their models for credit are based on income, age of account, etc.
Payments to vendors would constantly get frozen, incoming wire transfers get flagged. Getting a cash-backed company credit card wasn't possible. It has improved slightly recently, but still very tough.
Overall, I'd say very few startups use the big banks today. If they're not with SVB, they're with other mid-size regional banks.
> More importantly, SVB was particularly flexible about lending tech startups money even though they didn’t have free cash flow (because tech startups usually lose money at the beginning of their lives) or much in the way of assets (because startups often don’t have much more than the brains of their founders and early employees when they launch). “If you are a startup company, you don’t look like a normal business,” says Sean Byrnes, a startup founder and investor who says he has used SVB for years. “Most banks, if you go to them and ask for a loan, they’ll laugh at you.” SVB was also often willing to work with founders who weren’t US citizens, which would be an obstacle for more traditional banks.
… none of which is to say that this made SVB particularly irresponsible or deserving of what happened this week. It really does look like a confluence of bad timing w/r/t increasing interest rates and some unfortunately timed bond buys. IANAB, but it seems like all the money is there, just tied up in bonds that won’t mature for ten years, leaving them illiquid.
If I understand this correctly, SVB will be bought by a larger fish, and we’re back to business as usual, albeit more consolidated (enormously bad, imo, but a different bad).
> because tech startups usually lose money at the beginning of their lives
Oh what a 2010 thing to say!
2023 startups lose money for all their lives. SVB was running a bad business banking almost exclusively to startups that have never had positive cash flow.
I see. So useful for companies who are considered too high risk for "regular big banks" --- but they're all clumping together so it should be your second choice, only if you couldn't get a loan from a regular big bank.
Happy SVB customer (until this week) for my venture backed startup.
The big banks refused to even open an account for my startup. Our business model is incredibly common but due to it being "fintech" we could not open an account.
SVB still had a decent amount if KYC stuff and paperwork but would allow us to operate.
Another banking platform we used literally reversed the incoming wire from our lead seed investor, even though i called the bank before telling them to expect a large deposit.
SVB was great to work with. The people are fantastic. The big banks on the other hand...
In other words, SVB was willing to shoulder a greater amount of risk than the more staid banks. There's nothing wrong with that at all -- but taking on more risk is taking on more risk, and sometimes you end up getting burned by it.
> In many cases, startups exclusively banked with SVB because doing so was listed as a covenant of their debt!
> So CEOs across the tech sector on March 9 faced a hard choice: You can pull your deposits from the bank in order to save them, but then you would be in breach of covenant, and at risk of default on your venture debt. Of course, the alternative was that you risked losing everything if the bank failed. Many chose to hold tight as SVB’s outright failure seemed outlandish even a few short hours ago.
[this is a copy/paste of a comment I made on another thread]
If you want foreign currency accounts, there are two options Silicon Valley Bank or HSBC. HSBC requires deposits of $2mn to open foreign currency accounts, svb does not.
One thing that always surprised me about SVB was how bad the UX/UI of the site was, for a company so close to all these companies at the forefront of web technology. The signup process was abysmal.
To paraphrase an old saying: When you owe your creditors $1M and can't pay, you're in deep shit. When you owe your creditors $1B and can't pay, they're in deep shit.
I don't understand why people are blowing this out of proportion. SVB had $100 billion of securities that are now worth about 70-80 billion. That plus short term securities means they've got $100 billion liquid against $170 billion in deposits. So ~60% of deposits are coming on Monday.
They've got an additional ~70 billion in loans that are likely less liquid to fill the remaining 70 billion of deposits. It's less certain how much these are worth but they're at least worth something.
Net result is that depositors are losing 0-40% of their money. Much more likely that it's 0-15%. Which sucks but it's not going to kill an otherwise healthy company.
> I don't understand why people are blowing this out of proportion
The media is blowing this out of proportion bc it generates clicks.
The investors are blowing this out of proportion bc in the slim chance that the FDIC doesn’t get this resolved over the next week, their companies are at risk. And, helping their companies avoid that albeit small risk is their job.
I agree with you though. The most likely outcome is that almost everyone gets access to most of their funds next week.
Bullshit. I saw what happened 12 years ago and I can see what is happening now. No one is blowing anything out of proportion and least of all if they are they are not the reason I am nervous about my near and medium term situation. Many others here are the same.
The 16th largest US bank disappearing in 24 hours is not a molehill, particularly when it is the one that is the source of the check you depend on in existing in 6 days. Hope is not a strategy.
It's when they get their money that matters, it may takes months. Can't pay employees, cloud bills, vendors, etc until then. The most they get out on Monday is $250k, how long it takes the government to make good on the receivership certificate is unknown. Startups will likely have to take an additional line of credit from somewhere fast.
> The most they get out on Monday is $250k, how long it takes the government to make good on the receivership certificate is unknown
This isn’t quite accurate. The FDIC statement said they would make an advance payment on uninsured deposits within the next week.
So, there’s a guarantee that there is some money beyond 250k coming in less than a week. My guess is the other commenter’s analysis is close. The FDIC will determine the absolute floor of the value of assets that SVB had, and that will be the basis of the advance payments.
That will be the foundation of liquidity that companies will have while they wait for the rest of the process to conclude.
it will definitely take longer than even months to fully resolve, but the regulators are well aware of the risk of a slow resolution spreading panic beyond the true magnitude, causing a self-fulfilling prophecy. A delay of a few days in getting paid causing mass financial hardship should be a damning indictment of our collective lifestyle more than anything.
> I don't understand why people are blowing this out of proportion.
SVB collapsed and is the largest bank failure since the 2008 financial crisis.
It is unlikely to cause contagion (though some disagree) which means luckily the Fed won't raise interest rates to mitigate that risk (unless they also think there's risk of contagion, like some experts do).
While I generally agree about people blowing this out of proportion, here's a hypothetical:
SVB seems to have had a very concentrated set of customer relationships. For example, a startup might do its banking at SVB, and the startup's founder might do his/her banking at SVB. That include taking loans to buy houses as cars--because traditional banks don't "get" borrowers who look like a founder.
Now that startups can't make payroll (and some of the founder's personal deposits might be frozen), what if startup founders start defaulting on their loans?
So SVB's successor has to write down those assets... which makes it harder to pay out the deposits... which triggers more defaults... which results in writing down more assets. That could turn into a very nasty death spiral, particularly if it creates contagion that spreads to other banks.
Readit News
And rightfully so. I am wondering if they will need to pay delayed salaries with an interest.
Deleted Comment
Source: https://twitter.com/garrytan/status/1634286688922132481
Additionally, salaries are usually paid in arrears, which means you already did the work when payday comes so if it does not and you keep on working you're actually going deeper into the red.
I would think it worth working at least Monday, then deciding how to proceed after the banks have opened.
I also have a policy that i will never pay ransom, but 8f it happens, will I?
I certainly feel the same way but never put it to the test.
It was many years ago, but I vaguely remember I was hoping they really messed up so I could go to the beach or something.
Why? What did SVB provide that Citibank, JP Morgan, Wells Fargo, Bank of America, etc. not provide?
When you are a startup, a typical model is you deposit $2mm or $4mm or whatever of VC money and spend it down. You are a brand new company with no income and a bunch of money. You trip all their fraud flags, and all their models for credit are based on income, age of account, etc.
Payments to vendors would constantly get frozen, incoming wire transfers get flagged. Getting a cash-backed company credit card wasn't possible. It has improved slightly recently, but still very tough.
Overall, I'd say very few startups use the big banks today. If they're not with SVB, they're with other mid-size regional banks.
> More importantly, SVB was particularly flexible about lending tech startups money even though they didn’t have free cash flow (because tech startups usually lose money at the beginning of their lives) or much in the way of assets (because startups often don’t have much more than the brains of their founders and early employees when they launch). “If you are a startup company, you don’t look like a normal business,” says Sean Byrnes, a startup founder and investor who says he has used SVB for years. “Most banks, if you go to them and ask for a loan, they’ll laugh at you.” SVB was also often willing to work with founders who weren’t US citizens, which would be an obstacle for more traditional banks.
If I understand this correctly, SVB will be bought by a larger fish, and we’re back to business as usual, albeit more consolidated (enormously bad, imo, but a different bad).
Oh what a 2010 thing to say!
2023 startups lose money for all their lives. SVB was running a bad business banking almost exclusively to startups that have never had positive cash flow.
The big banks refused to even open an account for my startup. Our business model is incredibly common but due to it being "fintech" we could not open an account.
SVB still had a decent amount if KYC stuff and paperwork but would allow us to operate.
Another banking platform we used literally reversed the incoming wire from our lead seed investor, even though i called the bank before telling them to expect a large deposit.
SVB was great to work with. The people are fantastic. The big banks on the other hand...
> Our business model is incredibly common but due to it being "fintech" we could not open an account.
what's the name of your startup?
> In many cases, startups exclusively banked with SVB because doing so was listed as a covenant of their debt!
> So CEOs across the tech sector on March 9 faced a hard choice: You can pull your deposits from the bank in order to save them, but then you would be in breach of covenant, and at risk of default on your venture debt. Of course, the alternative was that you risked losing everything if the bank failed. Many chose to hold tight as SVB’s outright failure seemed outlandish even a few short hours ago.
[this is a copy/paste of a comment I made on another thread]
Would it be fair to characterize most answers as a generally larger appetite for risk? Anybody familiar care to comment?
Deleted Comment
They've got an additional ~70 billion in loans that are likely less liquid to fill the remaining 70 billion of deposits. It's less certain how much these are worth but they're at least worth something.
Net result is that depositors are losing 0-40% of their money. Much more likely that it's 0-15%. Which sucks but it's not going to kill an otherwise healthy company.
The media is blowing this out of proportion bc it generates clicks.
The investors are blowing this out of proportion bc in the slim chance that the FDIC doesn’t get this resolved over the next week, their companies are at risk. And, helping their companies avoid that albeit small risk is their job.
I agree with you though. The most likely outcome is that almost everyone gets access to most of their funds next week.
The 16th largest US bank disappearing in 24 hours is not a molehill, particularly when it is the one that is the source of the check you depend on in existing in 6 days. Hope is not a strategy.
This isn’t quite accurate. The FDIC statement said they would make an advance payment on uninsured deposits within the next week.
So, there’s a guarantee that there is some money beyond 250k coming in less than a week. My guess is the other commenter’s analysis is close. The FDIC will determine the absolute floor of the value of assets that SVB had, and that will be the basis of the advance payments.
That will be the foundation of liquidity that companies will have while they wait for the rest of the process to conclude.
SVB collapsed and is the largest bank failure since the 2008 financial crisis.
It is unlikely to cause contagion (though some disagree) which means luckily the Fed won't raise interest rates to mitigate that risk (unless they also think there's risk of contagion, like some experts do).
SVB seems to have had a very concentrated set of customer relationships. For example, a startup might do its banking at SVB, and the startup's founder might do his/her banking at SVB. That include taking loans to buy houses as cars--because traditional banks don't "get" borrowers who look like a founder.
Now that startups can't make payroll (and some of the founder's personal deposits might be frozen), what if startup founders start defaulting on their loans?
So SVB's successor has to write down those assets... which makes it harder to pay out the deposits... which triggers more defaults... which results in writing down more assets. That could turn into a very nasty death spiral, particularly if it creates contagion that spreads to other banks.
What proportion is valid when the same problem keeps happening?
I don't understand why people like you don't see the writing on the wall.
Fractional reserve banking is the problem. If you don't see it, I don't have time to explain it.