Silicon Valley Bank & First Republic: Crisis Meets

Opportunity In Fintech
forbes.com/sites/donmuir/2023/03/18/silicon-valley-bank--first-republic-crisis-meets-opportunity

March 18, 2023

Don Muir
Contributor
I write about tech disruption to startup finance and banking.

Mar 18, 2023,06:56pm EDT

SANTA CLARA, CALIFORNIA - MARCH 10: The Silicon Valley Bank (SVB) logo is seen through a rain
... [+]
Getty Images

In the $30 billion rescue attempt of First Republic on Friday, Too Big To Fail Banks led by
J.P. Morgan Chase, Citi, and Bank of America
BAC
-0.3% finally stepped up to help stave
off a crisis. Days earlier, in the stunning government seizure of Silicon Valley Bank and
crypto lender Signature Bank
SBNY
-22.9%, the Fed, FDIC, and Treasury were the stars.

But a separate cast of unsung heroes also was at work, and this shows what private
enterprise can do. Soon after SVB’s shares took a tumble in the after hours market on
Wednesday night, March 8, sending a wave of fear across thousands of customers, fintech

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firms started working to help cash-strapped startups meet payroll—and win new business
for themselves.

JP Morgan, Bank of America, Citi and other giants have always seemed reluctant to serve
Silicon Valley tech startups that have limited collateral and who burn more cash than they
make. In this crisis, the traditional banks lacked the technology to do so, anyway. This is
why Silicon Valley Bank was so integral to so many nascent companies and their funders
—and why its overnight collapse was so devastating.

PROMOTED

We watched in real time as capitalism’s invisible hand snapped into action. Fintech firms
created, overnight, innovative payroll financing programs for cash-strapped startups.
They offered SVB clients creative ways to spread cash across many different accounts at
many different financial institutions to maximize insurance coverage, all at once.

My San Francisco-based startup, Arc, was one of them. It all happened so fast.

At Arc, we had some of our cash at SVB, and we admired it as a pillar of the industry. At
the same time, this crisis offered an opportunity: we provide practically instant access to
banking services and loans to the very startups that were threatened by SVB’s tragic
tumble.

Flashback to Tuesday night of last week: I meet a hedge fund guy at the Four Seasons in
San Francisco, and the CEO of an ed-tech firm joins us. Both of them ask me the same
question: Why would any startup use Arc rather than Silicon Valley Bank?

I try to explain that we aren’t a bank, we’re a software business that partners with banks.
And this is a good thing, because we can help tech companies diversify their deposits
across many traditional banks without sacrificing user experience. They are less than sold.

Forbes Money





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Why 186 Other Banks Could Go TheWay Of Silicon Valley Bank
A day later, SVB stock plunged after hours on a surprise $1.8 billion loss that amounted to
less than 1% of assets. An Arc manager blasted an urgent Slack to our 40 employees:

“The next two business day(s) present a rare opportunity for us. SVB is about to endure
more churn & outflow over the following quarter than any moment in time over the last
decade…” He added: “We need to answer the call.”

On Thursday morning, we received a digital deluge of texts, emails, WhatsApp messages,

and phone calls from tech founders with cash at SVB. We already had reassigned most
everyone to a new role: onboarding panicked customers.

“This is rly rly bad,” one CEO texted to an Arc exec on Friday morning. Said another: “Hey
I’m wiring $250K to (another fintech), is it possible to open an arc account today to move
$250K. … Just trying to diversify.”

An email from the CEO of an AI media startup cut to the chase, seeking “an Arc advance
of say $1M while SVB is a mess ($0.5M would be fine if that’s easier for any reason)? … we
don’t want the cash to land in SVB, which is not reliably accessible for us right now.”

That is when we realized a payroll crisis loomed for thousands of startups. I quickly
responded: “Sorry to hear this. Yes, we're happy to support you in this challenging time,”
and looped in two other staffers to open his new account and expedite approval.

CEO: “Awesome to hear this… Thank you!”

At 1:17 p.m. California time on Friday, we proudly tweeted out a bold offer: “Get funding
to make payroll in less than 24 hours with Arc.” Thirteen minutes later, one of our peers,
Brex, tweeted out their own offer. Others tech companies, including Gusto and Pipe, also
quickly spun up solutions to help startups make payroll over the weekend. Ah, capitalism.

Later that day, our programmers gathered at the Palo Alto home of an Arc engineer, who
interrupted his vacation to host a weekend hackathon. They worked around the clock to
code new infrastructure to help customers securely diversify deposits and access instant

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payroll financing. On Saturday, our Chief Credit Officer and I worked through the night,
personally approving new accounts.

Upshot: some 500 startups applied to Arc for hundreds of millions in payroll financing.
We ended up funding only a fraction of this sum, however, before the feds on Sunday
night guaranteed SVB’s $175 billion in remaining deposits, easing the panic. I’ve never
been more relieved to discard so much hard work – the startup payroll crisis was averted.

In the week since the SVB crisis erupted, the amount of cash deposits we collected at Arc
was up 15-fold from a typical week. While the feds have quelled the crisis, SVB customers
continue to sign up with us and other fintech firms rather than return to the fold.

I am happy for the “backstop” the feds provided to SVB customers and beyond. It has
cauterized contagion fears, while protecting depositors who were guilty only of keeping
their cash at a top-20 bank that invested it in “safe” government securities.

Still … it is intriguing to ponder what the private markets might have accomplished if left
to their own devices.

Don Muir
I am a fintech entrepreneur, leveraging my private equity experience to make startup
finance and banking

...

Forbes Business
Breaking

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House GOP Demands Manhattan DA Testify Over Trump Criminal
Probe: ‘Unprecedented Abuse Of Prosecutorial Authority’
Nicholas Reimann
Forbes Staff

I cover breaking and trending news, focused on national politics.

Mar 20, 2023,01:49pm EDT

Topline
Top House Republicans sent a letter to Manhattan District Attorney Alvin Bragg on
Monday demanding he testify about his investigation into former President Donald
Trump’s role in an apparent hush money payment made to a porn star in the final days of
the 2016 campaign, which the GOP paints as a politically motivated probe relying on an
untested legal theory ahead of his potential indictment.

Former President Donald Trump speaks with reporters and staff on his airplane as he is flown to Iowa
... [+]
The Washington Post via Getty Images

Key Facts
The letter called the investigation an “unprecedented abuse of prosecutorial authority,”
claiming the DA’s office has spent years looking for an excuse to charge Trump and has
now settled on a “novel legal theory untested anywhere in the country.”

Trump predicted over the weekend he will be indicted Tuesday for allegedly orchestrating
a $130,000 payment to porn star Stormy Daniels to keep her from publicly disclosing an
alleged affair between the two—Bragg could claim the payment was an illegal political

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donation amounting to a felony violation of campaign finance law, but legal scholars are
uncertain the argument would pass muster.

House Republicans told Bragg he has a deadline of 10 a.m. Thursday to make

arrangements to testify, and demanded he turn over all communications since the start of
2017 between the district attorney’s office and federal authorities concerning the Trump
investigation.

The letter also asks for all Trump-related communications involving former Manhattan
prosecutors Carey Dunne and Mark Pomerantz, who resigned in protest last year over
what they claimed was the slow pace of the Trump investigation—Republicans argue
Bragg may bring charges against Trump in response to public criticism from the ex-
prosecutors.

House Judiciary Committee Chairman Jim Jordan (R-Ohio), House Oversight Committee
Chairman James Comer (R-Ky.) and House Administration Committee Chairman Bryan
Steil (R-Wisc.) signed Monday’s letter.

The district attorney’s office did not immediately respond to a request for comment from
Forbes.

Forbes Business





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2023 Layoff Tracker: AmazonSlashes 9,000 Employees

Crucial Quote
“The inference from the totality of these facts is that your impending indictment is
motivated by political calculations,” the letter said.

What To Watch For

Trump has called for protests, though the Manhattan grand jury has not yet returned an
indictment. The former president is expected to be booked at the district attorney’s office
if he’s charged, where he will have a mugshot taken before an arraignment where he will
enter a plea and then almost certainly be immediately released. New York City police were
spotted Monday setting up barricades outside the Manhattan Criminal Courthouse.

Key Background
Trump has repeatedly denied having an affair with Daniels and has distanced himself
from the $130,000 payment, likening the investigation to one of several legal “witch
hunts” targeting him for political reasons. The check to Daniels was signed by longtime
Trump fixer Michael Cohen, who had a falling out with Trump during his presidency and
has since become a vocal critic of the ex-president. The Trump Organization then
appeared to reimburse Cohen for the payment with a check for legal fees, which
prosecutors may argue was a falsification of business records—a misdemeanor in New
York. Cohen has testified multiple times before the grand jury, but Republicans have
blasted his credibility, calling him “a convicted perjurer with a demonstrable prejudice
against President Trump” in Monday’s letter. Daniels ultimately went public with details
of the alleged affair in 2018, saying she had the right to since Trump did not personally
sign her non-disclosure agreement. Cohen pleaded guilty to eight felony counts in 2018,
including a charge for violating campaign finance law related to the payment to Daniels.

Tangent

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Trump is the subject of two federal special counsel investigations, and he also faces
criminal and civil probes in New York for alleged financial fraud and a criminal
investigation in Georgia related to his efforts to overturn the 2020 election results.
Trump’s team filed a motion Monday to block the Georgia probe in an apparent last-
minute attempt to end the investigation.

Further Reading
Trump Expected To Be Criminally Charged In New York, Report Says (Forbes)

Trump Says He Will Be Arrested Tuesday—Urges Supporters To Protest (Forbes)

Here’s What Will Happen If Trump Is Arrested (Forbes)

Attorney General Garland Appoints Special Counsel To Determine If Trump Faces

Charges (Forbes)

Trump’s Golf Club Now Faces Criminal Investigation—As Legal Troubles Mount For
Former President (Forbes)

Trump Tries To Block Georgia Election Investigation As Criminal Charges Loom (Forbes)

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Nicholas Reimann
I'm a news reporter for Forbes focused on national politics and other news of the day,
such as social media trends,

...

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