Silicon Valley Bank’s failure felt in North Texas, could ‘kill’ startup companies
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The seismic waves from last week’s failure of California-based Silicon Valley Bank, the largest bank collapse since the 2008 financial crisis, are being felt in Texas.
The close of the nation’s 16th largest commercial bank at first glance may seem to have only impacted emerging tech startups and venture capital firms in Silicon Valley, but the impact on North Texans has been more than what meets the eye.
Many North Texas startups that have received investment from venture capital firms have some kind of relationship with SVB, said Cameron Cushman, assistant vice president of innovation ecosystems at the University of North Texas Health Science Center at Fort Worth.
“Even though you may not know Silicon Valley Bank or see their branches around the Metroplex, they were instrumental to funding and banking many of the high-growth startups that operate in the area,” Cushman said.
The FDIC intervened by taking control of SVB’s assets last week after the bank ran out of cash. Over the weekend, regulators also took over Signature Bank of New York. Treasury Secretary Janet Yellen said on “Face the Nation” on Sunday that the administration would not pursue a bailout.
After SVB’s failure, which was the second largest bank failure in U.S. history, startups with connections to SVB learned that money in their accounts was frozen or inaccessible, Cushman said. Those funds went toward a variety of expenses, including payroll and general business operations.
“It was a scary moment for many local high-growth startup companies,” Cushman said. “This wasn’t something anyone saw coming, and it all seemed to happen so fast. These are the kinds of events that can kill startup companies. These external forces can sometimes force even the best, most promising startup companies to go under, through no fault of their own.”
Monday morning, President Joe Biden sought to reassure the markets and the public in a speech where he assured that the nation’s banking system is safe, and that the government will protect all deposits at SVB in hopes of preventing wider fallout. Biden said taxpayer dollars will not be used to cover losses.
On Monday, major U.S. banks lost about $90 billion in stock market value, bringing their loss over the past three trading sessions to nearly $190 billion, Reuters reported.
“There are deals being worked out to return the capital to these startup companies with federal assistance,” Cushman said. “Many venture firms and investors have also jumped in to help by floating additional cash to their portfolio companies until this crisis passes. Ultimately, I think you’ll see a few startups fail, but I think most will weather the storm and live to fight another day.”
The bank collapse could have some long-lasting effects on Texas and specifically Fort Worth startups, Cushman said.
Perhaps companies will reconsider using one bank to manage their finances as opposed to utilizing multiple banks and spreading out the risk. SVB’s closure could also create new opportunities for other banks entering the startup funding world to gain market share.
“Some banks have already rushed in to help and are hoping to gain new customers from the startups that were SVB customers just last week,” Cushman said. “Finally, even though SVB had offices in Texas, I think this will further shift the control of early-stage capital away from California. Texas could be uniquely poised to grow in this area.”
Dallas-based luxury rideshare service Alto first got wind of a potential bank crisis last Thursday morning. The startup launched in 2018 and offers rideshare services across the Metroplex and in Houston, Los Angeles, Washington D.C. and San Francisco.
Alto CEO Will Coleman learned SVB, which held the company’s money, was raising funds and emergency capital to bolster its balance sheet. After meeting with the company’s board to evaluate the situation and discuss how to proceed, Alto began taking proactive measures to move its cash out of SVB if necessary.
The rideshare company attempted to send several wires out of SVB to a different bank account Friday morning before learning the FDIC put the bank in receivership, a court-appointed tool to help the bank recover funds and prevent bankruptcy.
Alto’s wire transfers never went through. Since Friday morning, the North Texas company has been left to run daily business operations without access to its cash.
Despite being a customer of the bank, Coleman said Alto is still in a strong position for the long term and he isn’t concerned about the cash position of the business.
“The biggest challenge is just the ability to have an operating account that functions property and execute transactions,” said Coleman.
Coleman said it’s been extremely difficult to log into SVB’s website since it reopened Monday morning and conduct transactions despite the cash still being there. The majority of Alto’s treasury worked through SVB, including corporate credit cards. This means Alto’s 2,000 employees across the U.S. can’t use their corporate cards for everything from traveling for work, purchasing meals and paying for things like fuel that they contract with providers, Coleman said.
“This is just another example of the trial and tribulation that comes with running a business,” Coleman said. “I wouldn’t have listed this among the top 100 risks to business last Wednesday, but this is how the process works. We respond, fix and move on.”
Another North Texas business impacted directly by the bank’s failure was TWG Supply, a Grapevine-based company that distributes airline equipment, including baggage handling equipment and boarding bridges.
The payroll processor for the company’s 18 employees used SVB, and it was supposed to pay employees Friday morning. When the bank collapsed, employees were left missing their paychecks for a few hours before the company had to front its own money to cover the cost until the payroll processor switched to a new bank, JP Morgan Chase.
All of TWG Supply’s employees received their deposits as of Monday morning. The switch is evidence of the consolidation that’s going to happen in the banking world, for the better or the worse, said TWG Supply’s director of operations, Bill Tyler.
“My confidence in the American banking system isn’t where it was on Thursday of last week,” Tyler said.
He said despite the situation, TWG Supply isn’t going to make any different banking decisions in the future, because he still believes in small- to mid-sized banks.
Tyler said he thinks what the government has done to protect all SVB deposits worth provides people some solace, but he doesn’t know what kind of precedent it sets.
This story was originally published March 13, 2023 at 2:51 PM.
