The fortunes and fates of a number of Pasadena technology companies hung in the balance this weekend as a high-stakes drama played out in Washington over how the federal government would respond to the Friday collapse of a bank used by about 50% of the technology industry.
Silicon Valley Bank failed and was taken over by federal regulators. The collapse – the largest U.S. bank failure since 2008 – left depositors protected only up to the Federal Deposit Insurance Corp. limit of $250,000.
89% of SVB’s $175 billion in deposits were uninsured as of the end of 2022, according to the FDIC.
Sunday afternoon, regulators announced Treasury Secretary Janet Yellen approved actions enabling the FDIC to fully protect all depositors. Depositors will have access to all of their money starting Monday, March 13, the government said.
Former City Councilmember Andy Wilson, who is CEO of Alliance for SoCal Innovation, described Saturday and Sunday as “a weekend like no other” for local technology entrepreneurs and said Silicon Valley Bank’s failure threatened the entire startup economy.
“We naturally have a large number of impacted companies locally,” Wilson said. “I personally know many struggled to make payroll on Friday when their funds got locked up by the FDIC.”
Aaron Fyke, Founder and Managing Partner of Thin Line Capital, a Pasadena-based venture capital firm that invests in clean energy technology companies, told Wilson the weekend had been “an exhausting 48 hours.”
Wilson cited Pasadena startup Embodied CEO Paolo Pirjanian understated observation on Linkedin that it was “Tough to have your most recent series C [of venture funding] be frozen in an account you cannot access.”
As tension mounted all weekend and Monday approached without a resolution, local tech entrepreneurs were consumed by the drama.
“For Pasadena tech companies who bank with Silicon Valley Bank or who rely on investments from venture capital firms who do, the immediate impacts are likely quite dramatic,” Art+Logic Co-Founder Paul Hershenson told Pasadena Now before the bailout announcement was issued.
“Many venture-backed startups burn through $250K in cash (the FDIC insurance limit) quite quickly and their founders are likely scrambling to safeguard their companies before their runway runs out. I am very grateful not to be in their shoes right now. For others who bank elsewhere, it would be prudent to spread their cash across accounts at several institutions to maximize their insured funds.”
After the bailout announcement, Fyke said “Swift action was needed, so this was a welcome announcement for startups while restoring confidence in the broader banking system. One of my founders broke down crying upon hearing the news, because this meant he wasn’t facing mass layoffs in a couple of days.”