Collapse of SVB

This Is What Happened
The Collapse
of SVB…
And what that means for startups
& the rest of us
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Helping You Grow In Finance & Accounting

About
this guide
In this guide
Why Silicon Valley Bank (SVB)

Collapsed…
and what it means for
Startups, and the rest of us…

Contents
1 What happened to SVB? 4
2 Who is SVB and why is this so important? 8
3 How did this happen? 11

How banks work 12
SVB Invested in Various Available for Sale (AFS) Securities, 17
and Held to Maturity Fixed Income Investments
SVB Sold close to all of it’s AFS securities for a $1.8B loss, 19
and announced it was raising capital
Why did SVB sell it’s securities at a loss? 21
The Bank Run 26
4 What does this mean for startups & the rest of 32

the economy?
Best case: SVB Gets acquired, and startups will 43

eventually get back all of their money held at SVB
Other possibilities: The US Government Steps in 47
Other Possibilities: Startups will eventually get back only a 49
portion of their money held at SVB
5 Where to go from here 50

Know that you are in good company 51
Stay closely up to date with what’s happening 53
Understand your upcoming cash expenditures 55
Stay LEAN 57

What
happened to
SVB?
1
What happened to SVB?

On Friday, March 10th
The Federal Deposit

Insurance Corporation
(FDIC) took the bank
into receivership

What does “receivership”
mean?
It means that the bank

has been SHUT DOWN
and taken over by a
government agency or
designated receiver due
to FINANCIAL PROBLEMS
or INSOLVENCY

Eventually
The assets and liabilities will be
divvied up
Customers at the bank will be given

receiver certificates
By law, after insured depositors are

paid, uninsured depositors are paid
next, followed by general creditors and
then shareholders
Insured Uninsured General Shareholders

Depositors Depositors Creditors

Who is SVB
and Why is this
so important?
2
Who is SVB and Why is this so important?

Perhaps the better
question is who was
SVB
SVB was the 16th largest

bank in the US, but most
importantly….
They were the bank of

choice for an estimated
more than half of the
VC-backed companies

This means that a
VERY LARGE amount
of startups & venture
capital firms have
their money right now
FROZEN, and unable
to access

How did this happen?
OK…let’s back up to how this all started

How did this happen?

1
How Banks
Work
How did this happen? - How Banks Work

Banks are pretty
complex…
and require a whole
encyclopedia on the
topic
How Do you Prepare a Departmental Budget? - Outline Who Will Do What

In very simplified
terms, they collect
money for deposit
and use that money to
invest in various types
of securities with
varying levels of RISK

That’s right, banks
don’t just hold your
money in their account
Which is why if all customers of
a bank request their money…
IE a “Bank Run”…(ever seen It’s a Wonderful Life?)

It will almost certainly cause the bank to
become insolvent

There is heavy
regulation with banks in
order to protect against
a catastrophe like this
But no regulations
are perfect!

2
SVB Invested in Various

Available for Sale (AFS)
Securities, and Held to
Maturity Fixed Income
Investments
How did this happen? - SVB Invested in Various Available for Sale (AFS) Securities, and Held to Mat...

Like many banks, SVB
invested in many different
types of securities
Some of these investments

work as such…
The bank buys a security that

returns a certain %, like a bond
That security then goes up or down

in resale value, based off of the
rates in other more safe securities…
like securities
issued by the Fed

3
SVB Sold close to all of it’s

AFS securities for a $1.8B
loss, and announced it was
raising capital
How did this happen? - SVB Sold close to all of it’s AFS for a $1.8B loss, and announced it was rais...

On Wednesday, March
8th 2023
SVB announced to it’s
shareholders that it had sold
substantially all of it’s AFS
Securities and was raising capital
This is when people started to PANIC!

4
Why did SVB Sell

its Securities for a
loss?
How did this happen? - Why did SVB Sell its Securities for a loss?

No one knows exactly
why SVB sold off so much
of it’s securities…
But there is speculation that it had

to do with the fact that startups have
not been depositing as much capital
in their accounts in recent months
due to constraints with the economy
due to inflation
Less customer deposits

= less interest income &
less money to invest

When SVB sold these
securities, it took a
STEEP Loss, which was
primarily driven by the
fact that the Fed
Raised interest rates

When the fed raises
interest rates…that’s
kind of a big deal…
And it affects many

industries, and
other investments
The fed raised interest rates in an effort to

cool inflation…the government is trying to get
the economy to spend less, and save more

The general concept is that
when the return of a SAFER
security goes up…
All riskier securities go

DOWN in value…
Since you can invest your money

elsewhere for a better risk / reward
ratio
And the securities offered by the US

government are the SAFEST types of
securities (though no security is
100% safe!)

5
The Bank
Run
How did this happen? - The Bank Run

It’s never a pleasant thing
to read in the news that
your bank is having trouble
this put startups

into a PANIC

The news
quickly
spread
And the advice appeared to
start off as mixed
The CEO of SVB told it’s

shareholders that the bank has
“ample liquidity to support our clients
with one exception: If everyone is
telling each other SVB is in trouble,
that would be a challenge.”
But that wasn’t enough to

stop what happened…

Startups started pulling out their
capital as a matter of protecting
themselves using the principles of
game theory
Most startups tried to pull out their money out of fear of

having their funds frozen before they can access them. This
created a Bank Run, which ultimately crippled the bank

As more and more companies
started to pull their funds from SVB…
the expected took place..
and the site started to

show technical difficulties

On Friday March 10th, the
California Department of
Financial Protection and
Innovation CLOSED SVB,
and appointed the FDIC as
the receiver
https://www.fdic.gov/news/press-
releases/2023/pr23016.html

What Does this
Mean for Startups
& The rest of the
economy?
What Does this Mean for Startups & The rest of the economy?

For startups who were
unable to transfer their
funds in time (there were a
lot of them)…their funds
are currently “frozen” by
the FDIC until Monday
March 13th
That means they were unable

on Friday to freely transact
with the funds they had
stored in their bank accounts

The FDIC announced
on Friday that
“All insured depositors will

have full access to their insured
deposits no later than Monday
morning, March 13, 2023.”
insured deposits mean up

to $250k

The FDIC also mentioned that it
“will pay uninsured depositors
an advance dividend within the
next week."
That means that startups will

have access to up to $250k of
their funds by Monday
But any amounts after that have no
guarantee as to what will happen, and when

That means that it is
possible that startups
will start to face some
serious liquidity issues
if they do not get access
to their funds in time
Which can affect:
EMPLOYEES
SUPPLIERS
INVESTORS
EVERYONE WHO INTERACTS WITH A

STARTUP WHO BANKS AT SVB!

The Rest of
the Economy
What Does this Mean for Startups & The rest of the economy? - The Rest of the Economy

This pressure in liquidity is not
going to only affect startups
It is going to affect everyone who does

business with startups
which can affect everyone who does

business with companies who do business
with startups
there is no limit to how much the economy

can be impacted by a piece of news like this
The Broader Economy

Investors
Suppliers & Customers

Employees
Startups
There can be no limit to who in our

economy is impacted by news like this

What’s the
Outcome
What Does this Mean for Startups & The rest of the economy? - What’s the Outcome

While nothing lies for
certain, there is
speculation on what
will take place from
here

The good news is, if you
are a startup who is
affected by this
YOU ARE NOT ALONE

And the world knows about this
And many of us are all affected

by what is happening

To me,
That raises the
likelihood of one of the
following positive
scenarios taking place

1
Best Case:
SVB Gets acquired, and
startups will eventually
get back all of their
money held at SVB
Best Case: SVB Gets acquired, and startups will eventually get back all of their money held at SVB

This would be the best
case scenario, and many
believe it is very likely
given the magnitude of
the impact here
What’s more debated is the TIMELINE

in which startups will receive access
to their capital, and how they will pay
their bills until then

Best Case: Startups will eventually get
back all of their money held at SVB
One way all money can be

returned is if an acquirer
comes along willing to absorb
the banks assets and liabilities
This has happened many times in the

past, where a bigger bank will acquire a
collapsed bank
If this happens, startups may receive back
all of their funds held at SVB
Best Case: Startups will eventually get back all of their money held at SVB

According to some sources,
there is an auction taking
place RIGHT NOW for SVB
With the final bids due today,

Sunday March 12th 2023
It’s possible by the evening

there will be a resolution 🤞
Best Case: Startups will eventually get back all of their money held at SVB

2
Other Possibilities:
The US Government
Steps in
Other Possibilities: The US Government Steps in

Sometimes, a banks collapse
is so big, that the US
Government takes action in
order to prevent some really
bad things from happening
in the economy
This can mean what’s know as a “bailout”,

where the Gov’t injects capital into the
failing bank in order to protect it’s creditors
Many feel that a bailout is highly unlikely in

this case, and would be unprecedented
Other options can be the Fed lowering their

interest rates in an effort to prevent further
banks from becoming insolvent
There is a huge difference between a top 5

bank, and a top 20 bank

Other Possibilities: Startups will
eventually get back only a portion of
their money held at SVB
There is no guarantee
past the $250k FDIC
insured amount that
startups will receive
back their funds
Many speculate that it can be fractions on

the dollar that is returned to startups
Unfortunately…with the way this works…

there is no way to know for certain what
can happen

Where to go
from here
Where to go from here

1
First…
know that you are
in good company
Where to go from here - First…know that you are in good company

First…
know that you are in good company
If you are a startup in need of

advice or support with your
current Financial needs,
please reach out to me so I

can keep you up to date on
what’s happening
I can also do my best to offer my advice

to the best of my knowledge as
updates continue to come in
Where to go from here - First…know that you are in good company

2
Next…
stay closely up to
date with what’s
happening
Where to go from here - Next…stay closely up to date with what’s happening

Next…
stay closely up to date with what’s
happening
Stay in close watch to the

news, specifically for
updates from the FDIC
There is a number you can call for

updates, but I am not confident it will be
too easy to reach someone and get clear
and concrete answers
Excerpt from FDICs website
Where to go from here - Next…stay closely up to date with what’s happening

3
Next…
Understand your
upcoming cash
expenditures
Where to go from here - Next…Understand your upcoming cash expenditures

Next…
Understand your upcoming cash
expenditures
We are entering
unchartered territories
where everyday can be
a mystery
Get CRYSTAL CLARITY on what
How much cash you have access to
What your liabilities are (payroll,

vendors, debt payments…ANYTHING)
Where to go from here - Next…Understand your upcoming cash expenditures

4
Lastly…
Stay LEAN
Where to go from here - Lastly…stay LEAN

Lastly…
Stay LEAN
This is the time to

stay in control of your
cash expenditures
Be PROACTIVE and not

REACTIVE…take action QUICKLY
to stay financially healthy until
this is all over
Hopefully there is a happy ending
Where to go from here - Lastly…stay LEAN

Remember..
it’s not just Startups
affected
Because of the
way our economy
is connected to
one another
it’s a good idea to remain HIGHLY

VIGILANT of your cash position
and ensure you are not taken by

ANY SURPRISES

In the future...
It may be best to
have AT LEAST 2
banking
relationships
This will help diversify the risk of

one bank
And continuously monitor the

credit ratings of the banks

Thanks for
reading!
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Questions?
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Finance & Accounting tips
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Guest Contributor
Steve
Gobbo
Steve Gobbo is Head of Finance for Oxford University Press
(OUP), leading the US & Canada region in Treasury, Financial
Accounting & Reporting, Tax, and Shared Service
responsibilities. Prior to OUP, Steve held various Senior
Executive posts spanning 20 years at leading multinational
consumer product organizations ranging in size between $1B
to $20B+ of revenue and served as President of the North
Carolina Treasury Management Association.
Steve has been a frequent speaker at regional conferences

and events, sharing a passion for endlessly learning and
perpetually teaching. Steve has been recognized as a “40
Under 40” award recipient in the Triad Business Journal and
holds the Certified Treasury Professional (CTP) designation.
Follow me at
https://www.linkedin.com/in/sgobbo/

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This Is What Happened

Helping You Grow In Finance & Accounting

Why Silicon Valley Bank (SVB)

Helping You Grow In Finance & Accounting

2 Who is SVB and why is this so important? 8

3 How did this happen? 11

4 What does this mean for startups & the rest of 32

Best case: SVB Gets acquired, and startups will 43

5 Where to go from here 50

Helping You Grow In Finance & Accounting

What happened to SVB?

Helping You Grow In Finance & Accounting

The Federal Deposit

What happened to SVB?

Helping You Grow In Finance & Accounting

It means that the bank

Helping You Grow In Finance & Accounting

Customers at the bank will be given

By law, after insured depositors are

Insured Uninsured General Shareholders

What happened to SVB?

Helping You Grow In Finance & Accounting

Who is SVB and Why is this so important?

Helping You Grow In Finance & Accounting

SVB was the 16th largest

They were the bank of

Who is SVB and Why is this so important?

Helping You Grow In Finance & Accounting

Who is SVB and Why is this so important?

Helping You Grow In Finance & Accounting

How did this happen?

Helping You Grow In Finance & Accounting

How did this happen? - How Banks Work

Helping You Grow In Finance & Accounting

How Do you Prepare a Departmental Budget? - Outline Who Will Do What

Helping You Grow In Finance & Accounting

Helping You Grow In Finance & Accounting

IE a “Bank Run”…(ever seen It’s a Wonderful Life?)

How Do you Prepare a Departmental Budget? - Outline Who Will Do What

Helping You Grow In Finance & Accounting

Helping You Grow In Finance & Accounting

SVB Invested in Various

Helping You Grow In Finance & Accounting

Some of these investments

The bank buys a security that

That security then goes up or down

Helping You Grow In Finance & Accounting

SVB Sold close to all of it’s

Helping You Grow In Finance & Accounting

This is when people started to PANIC!

Helping You Grow In Finance & Accounting

Why did SVB Sell

Helping You Grow In Finance & Accounting

But there is speculation that it had

Less customer deposits

Helping You Grow In Finance & Accounting

Helping You Grow In Finance & Accounting

And it affects many

The fed raised interest rates in an effort to

Helping You Grow In Finance & Accounting

All riskier securities go

Since you can invest your money

And the securities offered by the US

Helping You Grow In Finance & Accounting