On Thursday, my company was business as usual. A day later, we lost access to all our funds and were scrambling to meet payroll.
The failure of Silicon Valley Bank is still reverberating through the startup world. I’m among the many founders who were customers of the bank. Here’s my story of the rollercoaster that my company, Winnie, and I rode through its collapse and the ensuing days, as well as my lessons learned:
A week ago today, I was just doing business as normal, not thinking there was anything going on that I should be concerned about. And it wasn’t really until Thursday afternoon that I started hearing a lot of the same rumors that everyone else was hearing, that Silicon Valley Bank was in trouble and people were going to pull their money out.
I was in kind of an interesting situation. SVB was Winnie’s only bank account. We have an agreement with them that says they will be our only bank account. We have a line of venture debt with them. We’ve never used those funds, but the idea was that the line was there kind of as an insurance policy if it ever were needed. And a requirement of that line is that we keep all of our money in SVB. That’s never been a problem. We’ve been banking with them since we started Winnie more than seven years ago. It’s always been a safe place to deposit and withdraw cash.
Everyone was kind of questioning things on Thursday, but I checked with a number of people who said that since most of our funds at SVB were held in a cash sweep account, that was pretty safe. But I thought, “You know, I better wire some money out. I know this would be breaching my agreement with SVB. But they probably won’t care if it’s just enough to make payroll that I wire somewhere else.”
I decided to actually set up an entire other bank account on Thursday. And at the very end of the day, I wired money out. That wire would have hit on Friday when banks reopened and wire transfers happen again. So I went to bed not super concerned. But on Friday, the Federal Deposit Insurance Corporation closed SVB, so that wire never did anything and ended up being canceled when I logged in that day. And Friday, when the FDIC actually closed SVB, that’s when I saw how bad this was because we no longer had access to any of that money. Even though I still felt it was safe, and we were going to get it eventually, I realized I didn’t know how long eventually would be, and that we had payroll coming up this week. So that’s when I really started getting concerned about how we were going to make payroll and pay any other bill with our money frozen.
Then it got worse, because we also had a credit card with SVB, and it was part of our agreement with them that we would have the majority of our charges go on that credit card. Saturday morning is when that credit card stopped working, and all of our charges, everything automated that we’ve set up for the company, every piece of software to run the company, any charge that was on that particular credit card stopped working.
So we started moving those things over to a working credit card, which was our Brex credit card. And those charges started getting declined by Brex, because Brex decides your line of credit based on your bank account. They realized that our bank account was with SVB, and they sent a note to every customer whose line of credit was with SVB, and said “We’re going to keep your line of credit, but if you try to put like any new unusual charges on the card, those will get blocked.” These were new unusual charges because they were previously on the SVB card.
Our website was at risk at that point, and our whole business operation. I decided I just had to put up my personal credit cards, which was fine. I knew it was just kind of a cash-flow crunch, so I wasn’t worried that, you know, “Am I going to get paid back or something?” I knew Winnie was good for it. The problem is that personal credit cards just have a much lower limit. I knew that my cards have only a few thousand dollars that I could charge to each of them. I was just looking at how much money I spent and how much I was able to charge on a particular card before it would start hitting the limit.
That was the weekend. We’re fully virtual, so I posted in Slack a number of times, starting Thursday night when all this news came out, through to Monday. I just wanted to keep everyone informed, especially because there was a chance–there still is technically a chance–we may be late with payroll. And I want to make sure that if anyone was going to have a particularly tough time with that, I knew about it and could address it. Folks were understanding about the situation, and everyone wanted to pitch in and do something, which was incredible.
Monday was better. I was able to log into SVB today and wire a substantial amount of money into other bank accounts. I left a tiny bit in there, just in case there was something still hooked up to it, to prevent an overdraft, but otherwise everything has been moved to other accounts.
So I felt good about that. There’s that really scary period of an hour, where you see the money disappear from one bank to the new ones. So that was a lot of fun. But it’s all there. Now I have to wire money to my payroll processor, because they are normally set up to withdraw from SVB, and that won’t work now.
Lessons learned
This time I’ve opened multiple bank accounts. Definitely, my plan going forward is to have the money held in multiple accounts, and probably, at the moment, and like T-bills or something that earns a little bit of interest, and then keep the operating cash accessible and in multiple places if we need it. So if we ever need to switch for some reason, we can still make payroll.
But I think our overall philosophy remains the same, which is that treasury management at a company at the stage of Winnie is not that important. It’s important to have a really safe place or places to store your money, but optimizing for yield when you’re focused on getting to profitability and growing your business is not a great use of time. We will continue to do what we believe is best, which is to find a really safe place to park money, and not look to earn any sort of yield above what a money market account would give you.
But we now know, having redundancy is really important. We talked about that all the time when building our product, that we should have multiple systems, and we should have redundancy with our data, so that if anything were to go down, we can recover. But we didn’t have that for the banking setup. And part of that was because we weren’t allowed to, based on the agreement with SVB. But that wasn’t a good tradeoff.
Ultimately, there needs to be some redundancy. Not just if your bank closes, but like, if there was some kind of cyber attack on a bank, and it has to lock you out of the account — which is probably a more likely scenario — then you want to have funds in another account. That sort of thing I now think is important. We should have been thinking about it before. We learned a lesson, but fortunately, although it was a weekend of being stressed out, that’s just another weekend in my life.
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