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Tech Culture

How Tech Leaders Are Managing Anxieties after SVB Failure

In the aftermath of the Silicon Valley Bank debacle, some startup founders tell how they handled the uncertainty of 2023's first big crisis.
Mar 15th, 2023 10:59am by and
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Silicon Valley Bank held more than $209 billion in assets when it failed last Friday.

Some of that money belonged to Chainguard, a supply chain security company.

The crisis meant that the company’s stated value of “trust one another and assume good intentions” was put into practice, according to Dan Lorenc, Chainguard’s CEO and co-founder.

“During times of uncertainty, we lean on over-communication to our team, particularly when something may have a direct impact on the people that work here,” Lorenc said in an email response to questions from The New Stack. “Our focus has been on giving near-real-time updates as information was made available, typically through our companywide Slack channel.”

Chainguard’s leadership also committed to a thorough post-mortem of the bank failure and what it means at the company’s weekly all-hands meeting.

“We’ve drafted a document that walks through how the events unfolded, and what our team did in reaction to them,” Lorenc said. “This enables us to be transparent with the team on both the detailed actions we took, as well as how we as a business can be as prepared as possible in the future to mitigate risk in the event that something like this happens again.

Managing engineers and other tech workers during a crisis demands such transparency, said Lorenc and other leaders.

The Silicon Valley Bank was taken over by federal regulators on Friday in the wake of a bank run by depositors, the largest bank failure since the economic crisis of 2008. SVB, created 40 years ago, garnered much of its deposits from technology companies and tech employees and had carved out a niche as a lender of choice for tech startups.

The Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. (FDIC)  announced Sunday that it would protect deposits above the $250,000 per account already guaranteed by the FDIC.

The news came as a big relief said Lorenc: “Under the circumstances, we were fortunate. We have been able to successfully navigate the situation without taking any financial loss, particularly due to the statement released by the Department of Treasury, Federal Reserve and FDIC that our deposits will be protected.’

But between the SVB collapse, the federal takeover Sunday of Signature Bank, which had large exposure to cryptocurrency, and the continuing wave of tech company layoffs, nerves are still jangling in the tech world and beyond.

‘A Lot of Scenarios in My Head’

OpenSauced, an open source intelligence platform founded and led by Brian Douglas, kept its inbound sales revenue account at SVB, though its exposure was under the $250,000 FDIC guarantee. Douglas holds a finance degree and an MBA, giving him more insight into the banking world than many tech leaders. But he still acknowledged having a nervous weekend, watching events unfold.

“I had a lot of scenarios in my head,” he told The New Stack.

His company has two other full-time employees and three contractors. Rippling, the human-resources platform OpenSauced uses for payroll, was also an SVB customer and sent out a message Friday afternoon acknowledging its exposure to the bank failure.

Douglas sent out an email message to his employees, assuring them that they would be paid. Other than that, he waited for confirmation that Rippling would shift its account to JPMorgan Chase.

Since the SVB news broke, he has opened an additional account for OpenSauced, spreading deposits around so that they will be protected if another bank failure looms.

In a crisis like this past week’s, Douglas said, communication is crucial not only from management to employees but also from “founder to founder.” Some of the most vital information he received during the SVB meltdown, he said, came from Goodie Nation, a nonprofit that connects and supports social entrepreneurs and founders from marginalized communities.

“We did luck out with the government stepping up and giving us some breathing room,” Douglas said. “But I would just take this as a test for founders and say, ‘OK, now there’s probably more opportunity for us to sort of tighten the belt or tighten the structure of how things are paid.’”

Lessons for Startups

The SVB crisis, Douglas said, also offers the opportunity for founders to leverage professional help in handling their finances.

Startup incubators like Y Combinator, he said, could also play a role by giving entrepreneurs more guidance in setting up bank accounts in a way that minimizes their risk and is more advantageous to them.

“There’s an opportunity for folks to really start thinking about being financially educated around like, what does it mean to have millions of dollars in the bank, ready to deploy and ready to pay staff?” Douglas said. “Because most startups are planning for 18 to 24 months of burn.

“So if you have that amount of money that’s sitting, waiting in the bank, what are more opportunistic things you could do to make sure that you’re not exposed in a future bank run or a future interest rate hike, or a pandemic?”

He urged tech leaders to think about preparing for financial debacles like the SVB failure the way they prepare for disaster recovery in their organization’s systems: stage, fallback, test — and prepare to roll back if necessary.

For starters, Douglas said, “it probably makes sense to have three to six months of burn-in separate bank accounts.”

The Future for Startups and Banking

With SVB gone, Douglas predicted that other banks may see — and seize — an opportunity to invest more in the startup world.

“There’s too much money floating around for financial institutions not to participate,” he said.

That doesn’t mean, however, that fledgling companies looking to raise initial capital will find the rest of 2023 easy. From what Douglas is hearing from his peers, “It sounds like  some VCs might be delaying conversations for three to six months.”

He predicts that venture capital firms and other investors will be focused on their current portfolio companies in the short term. They’ll be busy trying to “help set up structure and set up disaster control around their banking infrastructure.

“Which means that if you’re currently fundraising or if you’re currently trying to build a business and get attention, the attention currently is not on you.”

Dealing with Uncertainty

Events at SVB moved at the speed of social media from Thursday through the weekend. But a fast-moving crisis isn’t a reason for leaders and managers to isolate themselves, Lorenc suggested.

“Though it can be scary to tell the company that you are unsure of an outcome that could directly impact them, it builds a deep sense of trust with your team,” he said via email.

“I don’t know” is sometimes the best answer to employees’ questions, he added:  “My advice having navigated this is to be honest, transparent and be OK telling your staff that you don’t have all the answers.”

Also, he advised staying calm despite the chaos.

“When something like this happens, much of it is truly out of your control,” he said. “Taking each piece of information as it comes, and making the most educated decision you can with the facts that are present is really all you can do.

“This has been an incredibly difficult experience for many, but taking a lot of deep breaths and remaining as even as you can as it unfolds allows for a clearer mind and more space to show the team support.”

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