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.
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.
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 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.
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.
> 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.
Read a stat only 2.7% of SVB’s deposits were under the $250k FDIC insurance threshold. Wasn’t sure if this was in $ or customer accounts terms.
If the latter, that’s a good predictor of the probability bank runs at other institutions.
When the VCs started advising their portfolio cos to pull out, it toppled the dominoes very fast. If SVB had a higher retail account mix, this probably would have been a slightly different outcome.
One report said depositors tried to pull out $45B before it went down. It would many HNI retail depositors doing a simultaneous withdrawal to trigger a failure. Not impossible, just much lower probability of that occurring.
If anyone has experience here: not paying wages is not the same as "letting someone go", "laying them off", or "firing" them, right? So if you have employment contract that has a signing bonus that needs to be returned if an employee willingly leaves within a time period but then the employee stops getting paid they can't leave the job without being on the hook for that signing bonus, right?
It’s complicated and depends heavily on the jurisdiction.
In order for it to be involuntary termination, what you’d likely need is a situation in which you have worked and not been paid for that work and the employer refusing to do so. This would create illegal or intolerable working conditions, to which you’d then need to argue is constructive dismissal.
But you should speak to a qualified employment attorney.
This sounds like something that you should not take any advice offered for free over the internet. There are a lot of nuances in employment law and location specific parts.
Constructive dismissal and furlough are some terms you can research for more info.
[+] [-] ergonaught|3 years ago|reply
[+] [-] gumballindie|3 years ago|reply
And rightfully so. I am wondering if they will need to pay delayed salaries with an interest.
[+] [-] skeeter2020|3 years ago|reply
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] ohdannyboy|3 years ago|reply
[+] [-] abirch|3 years ago|reply
[+] [-] Apreche|3 years ago|reply
[+] [-] ohdannyboy|3 years ago|reply
[+] [-] mytailorisrich|3 years ago|reply
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.
[+] [-] ClumsyPilot|3 years ago|reply
I also have a policy that i will never pay ransom, but 8f it happens, will I?
[+] [-] duxup|3 years ago|reply
I certainly feel the same way but never put it to the test.
[+] [-] andsoitis|3 years ago|reply
Why? What did SVB provide that Citibank, JP Morgan, Wells Fargo, Bank of America, etc. not provide?
[+] [-] JOnAgain|3 years ago|reply
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.
[+] [-] Eric_WVGG|3 years ago|reply
> 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.
[+] [-] exhibitapp|3 years ago|reply
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...
[+] [-] bumbledraven|3 years ago|reply
> 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]
[+] [-] panick21_|3 years ago|reply
[+] [-] dougSF70|3 years ago|reply
[+] [-] ______|3 years ago|reply
[+] [-] ashwagary|3 years ago|reply
Would it be fair to characterize most answers as a generally larger appetite for risk? Anybody familiar care to comment?
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] tylergetsay|3 years ago|reply
[+] [-] 0xbadc0de5|3 years ago|reply
[+] [-] treis|3 years ago|reply
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.
[+] [-] fairity|3 years ago|reply
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.
[+] [-] postalrat|3 years ago|reply
[+] [-] KidComputer|3 years ago|reply
[+] [-] andsoitis|3 years ago|reply
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).
[+] [-] labcomputer|3 years ago|reply
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.
[+] [-] darkerside|3 years ago|reply
[+] [-] velcrovan|3 years ago|reply
[+] [-] bognition|3 years ago|reply
[+] [-] bobleeswagger|3 years ago|reply
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.
[+] [-] baron816|3 years ago|reply
[+] [-] ianbotham|3 years ago|reply
[+] [-] andsoitis|3 years ago|reply
[+] [-] djbusby|3 years ago|reply
However, I've used BofA, Chase and WF for startups and it all worked fine. But we were only raising few millions.
[+] [-] duxup|3 years ago|reply
[+] [-] vivegi|3 years ago|reply
If the latter, that’s a good predictor of the probability bank runs at other institutions.
When the VCs started advising their portfolio cos to pull out, it toppled the dominoes very fast. If SVB had a higher retail account mix, this probably would have been a slightly different outcome.
One report said depositors tried to pull out $45B before it went down. It would many HNI retail depositors doing a simultaneous withdrawal to trigger a failure. Not impossible, just much lower probability of that occurring.
[+] [-] willis936|3 years ago|reply
[+] [-] chemeng|3 years ago|reply
In order for it to be involuntary termination, what you’d likely need is a situation in which you have worked and not been paid for that work and the employer refusing to do so. This would create illegal or intolerable working conditions, to which you’d then need to argue is constructive dismissal.
But you should speak to a qualified employment attorney.
[+] [-] eclark|3 years ago|reply
Constructive dismissal and furlough are some terms you can research for more info.
[+] [-] expertentipp|3 years ago|reply