The Weekend Silicon Valley Stared Into the Abyss

On Friday, March 10, Mike Wheeler, president and chief legal officer of payroll startup Patriot Software, was on a five-day cruise off the coast of Florida celebrating his brother’s wedding. When he stepped ashore that morning for a brief stop in Key West, his cell service returned and he got a message from a representative of the company’s former bank: “You ready to move some $ out of Silicon Valley bank??? 😳”

Wheeler replied with a question mark. During the night, his company should have sent about $40 million in paychecks to fry cooks, librarians, and 46,000 other US workers via Silicon Valley Bank, or SVB. The banker sent back a screengrab of a stock chart showing that SVB’s shares had fallen nearly 90 percent while Wheeler was at sea. SVB was on the brink of collapse—and Wheeler, stuck on a ship—knew almost nothing of the crisis unfolding back on dry land.

Late Wednesday, SVB, famed for startup-friendly loans and great wine parties, had announced it would be raising extra cash after losing $1.8 billion on low-interest bonds. The news followed weeks of gossip about the bank’s health and triggered a full-pelt panic after its CEO botched a conference call aimed at assuaging customer fears. SVB clients had tried to pull out a combined $42 billion the day before Wheeler received his perplexing text message, regulators say, the biggest bank run in US history. The startup industry’s go-to bank had closed that day $958 million short on cash. Wheeler would soon learn that things had only gotten worse since then.

Friday, March 10

As Wheeler caught up with the news in Key West, he learned that SVB’s troubles affected not just Patriot, based in Canton, Ohio, but also the roughly 57,000 organizations for which it calculates and disburses wages and payroll taxes. SVB holds those funds in escrow in the days before they get sent to workers at 12:01 am on Fridays. The chaos unfolding at SVB had broken that system, Wheeler discovered as he started poring through delayed text messages. No one had been paid—not even Patriot’s own staff.

By that point, Allie Egan, founder and CEO of Veracity Selfcare in New York, had experienced a full 24 hours of panic. Venture capital firms including Andreessen Horowitz and Peter Thiel’s Founders Fund had reportedly been advising their portfolio companies to diversify away from SVB, and Egan’s investors had joined the chorus on Thursday amid the bank run. But the agreement for Veracity’s seed funding stipulated that the money had to stay at the bank.

Egan held back from moving money—for now. But she was still concerned. “I was really afraid that we lost everything except the bare minimum,” she says, referring to the $250,000 per account guaranteed under the US Federal Deposit Insurance Corporation, or FDIC. That would cover just two months’ payroll. “As a founder, you have a lot of investors text you, and they're like, ‘What's your plan? What’s your plan?’ And you’re like, ‘I don’t know. I can’t really have a plan.’”

Taryn Aronson, CFO of smart oven and meal delivery company Tovala, based in Chicago, had tried to get the company’s money out of SVB the night before. But she had woken on Friday to the unwelcome news that the transfers had failed. Just like Patriot’s paycheck deposits for 8,100 clients that day, the cash was stuck. Tovala began putting in place a worst-case scenario to stretch its remaining capital for a couple of months. It was an “all-out crisis,” says Tovala’s founder and CEO, David Rabie.

Mid-morning on Friday, with the cruise ship still temporarily berthed in Key West, Patriot’s Wheeler left his family at a butterfly conservatory while leading a Zoom war room with colleagues back in Ohio. They tried resending the failed payroll transfers to no avail. At 11:56 Eastern, SVB emailed a just-issued government press release stating that the FDIC was taking over. An SVB representative agreed to join Patriot’s war room call and relayed news no customer wants to hear: The worst-case scenario had come true and the bank had collapsed. 

Inside SVB, some employees figured that their jobs were lost and the bank was dead. “The general consensus was that it was wind-down mode,” says one department head, who asked to remain anonymous, as they were not authorized to speak to the media. ​​SVB and FDIC declined to comment for this story.