A CFOs SVB Post Mortem

Whew! What a whirlwind of a week. Having assessed the hurricane’s damage, we found the lawn chairs, the roof is still intact, and the internet should be back on by dinner. But, damn, it wasn’t without its grey hairs.

CFO’s on Wednesday:

CFO’s on Sunday:

For those of you who missed what happened:

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Reflecting on my most recent post - SVB and the Looming Bank Run Contagion

Janet Yellen pushed us out of the eye of the storm.
But, to be clear, this isn’t a government bail out (per say) - banks pay into an insurance fund on a regular basis as a backstop for situations like this.
So the solution isn’t coming out of tax payer’s pockets; it’s coming out of this fancy US bank insurance policy thing that will now be like super depleted (so please, no other banks get any clever ideas in the 18 months).

So that’s good. But this doesn’t mean everything is up-and-to-the-right…

Yes, depositors have access to the money in their accounts (which was most important to quell the possibility of more bank runs and a tech collapse)
But it’s still TBD what will happen to all the SVB employees who got a shit hand - it sounds like the European entity was purchased by HSBC for literally a dollar
The bank’s debt and equity holders have been straight up gassed
And there are still some payroll runs and marketplace transactions that are lost in the upside-down world

RIP to all the payrolls stuck in the upsidedown world

As a CFO, here’s what this most recent boondoggle enforced:

STRONGLY consider the terms of your venture debt deals

What many people don’t realize is the primary reason why so many startups had their cash balances with SVB is because it was a condition of their venture debt loans. In other words, for SVB to loan them [$5M] in the form of either a term loan or revolving debt facility, they had to make the bank their #1 banking partner, and move all excess cash there as collateral.

A lot of founders were faced with a hard decision on Thursday - rip their cash out of SVB, and be in material breach of their debt covenants, or let it ride. I’m glad I didn’t have to make that tough decision.

Going forward, CFOs are going to closely consider the parameters of their loans. To let you behind the curtain, here’s the game behind the game - Banks like SVB get their talons in around the time of a company’s Seed round with a simple, founder-friendly, cheap term loan… and then expand their services over time.

And then you wake up six years later, you’re raising your Series F, you have hundreds of millions stashed across multiple SVB accounts, and you’d have an easier chance ripping out Workday or negotiating your way out of your WeWork space than moving on from SVB.

And even when you do decide to bite the bullet and breakup with SVB, they offer you a $75M working capital revolver at 3% that’s too good to turn down. It’s kind of like when you try to unsubscribe from Hulu and the pop up offers you 73 months free.

Just when you think you’re out… they pull you back in.

Dig into who your payroll provider works with

Perhaps the scariest sub plot of this fiasco: major payroll providers got caught in the hurricane’s wake. A bunch of startups, who didn’t even bank with SVB, got jammed up because they used a payroll provider who did.

A lot of tech companies use Rippling as a payroll provider, who experienced issues over the weekend.

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My friend, and paid subscriber of the newsletter “Marcus Aurelius,” uses Rippling, and his semi monthly payroll just went poof. It got lost in the upside-down world. So he had to scrape together and schedule a second payroll run. No bueno.

As a CFO, it’s your responsibility to understand not just how cash enters and leaves the building, but what your cash does in-between hitting it’s ultimate destination.