When founders scrambled to make payroll after the closure of SVB, some VC firms promised to help—but only a few actually wired money.
Last Friday afternoon, OpenAI CEO Sam Altman issued a challenge to Silicon Valley’s venture capitalists: Put your money where your mouth is. “Investors who ask ‘how can I be helpful’: today is a good day to offer emergency cash to your startups that need it for payroll or whatever,” Altman tweeted. “No docs, no terms, just send money.”
In the wake of Silicon Valley Bank’s abrupt closure that morning, Altman’s message struck at the big question for tech entrepreneurs and investors alike: With deposits at SVB frozen, how would they pay employees the following week?
Over that frantic weekend, venture capital firms scrambled to respond to the crisis. Some found creative ways to ensure their founders would have access to cash on Monday, at times offering up their partners’ personal funds. More set up contingencies to make loans if necessary, then hoped it would never come to that. Still others chose not to make such an offer, or failed to reach a consensus at all.
The moment mostly passed quickly; the FDIC announced it would protect all SVB deposits by Sunday night, meaning that by Monday morning, much of the situation’s urgency—and need for VC firms to back up their promises—had passed. But a few still did wire funds. The founders involved in the crisis won’t forget who stepped up, and who floundered at a crucial moment.
Conversations with about 20 investors and founders suggested that non-traditional investors like Altman, or smaller, individual-driven firms like Jason Lemkin’s SaaStr Fund, appeared to move the fastest, alongside several bigger firms that got creative in their problem-solving, including First Round and Redpoint. Most established firms, however, didn’t impress.
“Sadly getting requests from companies we have very minor positions in who aren’t getting help from their major investors,” billionaire investor Vinod Khosla said on Twitter. “Other investors being predatory. Not a time to make money.”
Loans, Equity And Wires In The SVB Aftermath
When Alex Lorestani, CEO of startup Geltor, which provides vegan proteins for beauty-product makers, started receiving emails from his investors last Thursday, most of them were one-liners. “They just asked, ‘Hey, are you exposed?’”
Geltor isn’t small—it raised $91 million in 2020—but it was exposed, its payroll funds tied up at SVB, with a transfer attempt to Mercury still pending. When Lorestani informed employees, then his 100-plus investors, however, help came from unexpected places: a fellow founder with some cash to spare, and newer firm Fifty Years, smaller than many with a $90 million fund. Both set up wired loans to transmit on Monday. Then those got blocked as potential fraud. At that point, Fifty Years founding partner Ela Madej connected her own personal bank account to Geltor’s payroll system and paid out the company’s employees herself.
“That was nuts,” Lorestani told Forbes. “It set a new standard.”
Over the weekend, meanwhile, Madej’s partner Seth Bannon tweeted to call out other VC firms that said they weren’t allowed to offer loans due to their limited partner agreements. “Yes you can. Just don’t use LP money,” Bannon wrote. His tweet drew an approving one from Khosla, who wrote that his firm, Khosla Ventures, was also working to use partners’ own money to help.
Khosla Ventures didn’t need to send out any loans in the end, partner Samir Kaul told Forbes, but was disturbed by the response of other established firms. “This wasn’t a time to point fingers; it was a time to get our founders to the other side to fight on,” he said. “When times are tough, we stick with our companies.”
Another bigger firm highlighted by its peers was Redpoint, where partner Alex Bard and others texted founders before the weekend to tell them they’d find a solution, then set up a separate entity and wired partners’ money into it to be redirected as needed. That promise moved another founder, Sahil Mansuri of salesperson-focused site Bravado, to share the messages in his own tweet thread. “It was an extraordinary measure of compassion and supporting entrepreneurs during a terrible moment,” Mansuri told Forbes. He ended up not taking any money, nor did any Redpoint founders, a source with knowledge added. (Greylock set up a similar fund that wasn’t accessed, according to one of its founders.)
As founders attempted to navigate the SVB website on Monday with mixed results, a few large firms surveyed by Forbes said they did send out a small amount of checks. Kleiner Perkins made one loan that was repaid within 24 hours; Menlo Ventures also wired one, without a time line for its return, according to partner Matt Murphy.
Perhaps the most active firm was First Round, two sources said. Of the early-stage firm’s 200-plus investments, 80 had money at SVB, one told Forbes, and 40 faced payroll concerns. With their LPs’ permission, First Round partners made a low-interest loan back to the firm—which had its own cash tied up at SVB—and made a handful of wires on Friday, then more than an additional dozen on Monday. (A source close to the firm said that such efforts paled in comparison to what some of the firm’s founders did, such as flying to California to be first in line to withdraw money on Monday.)
Most others that investors and founders disclosed to Forbes, or that responded to its requests for comment, said they’d prepared to wire loans in some capacity but had not needed to, a group including Accel, Benchmark and Index Ventures. Others were still evaluating options when the FDIC announced its decision, including Lux Capital and Sequoia, sources added.
Among firms linked with Thursday’s bank run on SVB because they reportedly warned founders to withdraw their funds, Coatue prepared to offer loans but didn’t, a source said; Union Square Ventures, meanwhile, circulated a loan offer document reviewed by Forbes that offered an interest rate of 4.5%, what the firm said was the minimum legal applicable rate for a short-term loan. The loan could also convert into preferred stock from the company’s most recent past funding round, or roll into its next equity financing of $2 million or more at 80% its price, per the document.
USV’s offer, too, went unused in the end by founders, partner Rebecca Kaden told Forbes by email. “We kept in close touch with our companies through Monday morning as the pipes started working again to make sure they all met payroll from their own accounts, which they did,” she wrote.
“From talking to other founders, I don’t think many VCs were able to do anything that helpful this weekend.”
Founders Fund, meanwhile, drew heightened scrutiny in part for its ties to Thiel, a public-opinion lightning rod. Blamed by some for helping to fuel the bank run (in reality, other firms warned their founders about SVB long before), Thiel eventually told the FT that he deliberately left $50 million in personal funds at SVB over the weekend, confident in the bank’s long-term survival. His firm, meanwhile, was mentioned by multiple peers as one that disappointed in its weekend response.
“They were saying, ‘We are not in the business of making loans—that’s not our problem. But we will buy more equity,’” said a partner at a firm that shares portfolio companies with Founders Fund. Firm spokesperson Erin Gleason said Founders Fund did not offer any equity-based convertible notes, known as SAFEs, to companies impacted by SVB.
“Corporate treasury management is ultimately the responsibility of the founders/CEO,” Founders Fund investor Delian Asparouhov tweeted on Saturday. “Never forget that.”
Some founders did tack on more funding to their last funding rounds generally, several investors said, with one telling Forbes that given 2023 equity pricing, such a move could have easily been more generous. Such notes would be more familiar to VC firms’ usual operations compared to loans, said Sandeep Dahiya, a professor of entrepreneurship at Georgetown University. “The whole idea of a venture fund isn’t to be lending to assets without collateral.”
A Longer Crisis Averted—And Uncalled Bluffs
If the FDIC hadn’t guaranteed deposits on Sunday and bank runs had extended to other startup banking partners, VC firms would have faced a crucible moment. Instead, it’s impossible to know how they would’ve truly responded when facing dozens, or hundreds, of companies facing business interruptions, with founders and board directors personally liable for employee pay. “I don’t think it was just virtue signaling,” said finance professor Michael Goldstein of Babson College. “Within the confines of the law, you’d be limiting the damage on a temporary basis and moving on.”
Several founders who spoke to Forbes wondered whether firms exaggerated their willingness to help because they anticipated the government making such efforts moot. “From talking to other founders, I don’t think many VCs were able to do anything that helpful this weekend,” said one tech CEO, who asked to remain anonymous so they could avoid giving “untrue fluffy bullshit.” “Even the best-hearted ones were spread thin over just how many companies were affected. So it was really left to founders to rally their resources and pull support from wherever they could.”
Some investors, especially fund managers without the personal means or large enough funds to provide financial assistance themselves, focused instead on providing the most up-to-date information on the state of the government’s response and alternative loan sources like Brex’s weekend emergency fund.
“It was all happening so fast that talking to founders and VCs were your only option,” said founder Jordana Stein, CEO of executive peer-learning startup Enrich, who turned to VC firm Bloomberg Beta’s founder Slack channel after she couldn’t get into a popular founder WhatsApp group that quickly reached the app’s 1,024-member limit. Others turned to Signal and WhatsApp groups, or email groups like A16Z’s CEO distribution list. (The firm declined to comment on whether it offered its founders loans.)
But the investors who actually walked the walk by wiring money, mostly from smaller partnerships or nontraditional funds, told Forbes doing so wasn’t nearly as hard as some big firms let on. Altman lined up a number of wires despite being just several days from OpenAI’s big GPT-4 launch. Others that Forbes learned sent a number of wires included Conviction founder Sarah Guo, solo capitalist Lachy Groom and former GitHub CEO Nat Friedman. (An honorable mention from several founders went to John Curtius, who reached out to startups he’d backed at Tiger Global to help, despite leaving last year to start Cedar Investment Management. But Curtius’ money wasn’t ultimately needed, they said.)
“I did it in 60 seconds. It was easy, and honestly, in a sense, fun, because it’s a time when you want to add value,” said Lemkin at SaaStr Fund. His fund’s money was also at SVB, but he was able to wire founders cash from his personal Wells Fargo account. “I offered immediately and wired without a thought, just told my LPs. But if you are a junior partner at a big fund, I suspect it would be very hard unless the ‘Big Bosses’ put it together.”