Federal government / Finance / Investing

Post-Silicon Valley Bank shutdown, here’s what one investor expects to change

Broad Street Angels' portfolio companies weren't hugely impacted by the collapse, but Chair Bob Ciaruffoli thinks every tech exec will reconsider the way they bank.

Silicon Valley Bank. (Photo by Flickr user Focal Foto, used via a Creative Commons license)

After the chaos of Silicon Valley Bank (SVB) shutting down last Friday and the relief that came after the Federal Deposit Insurance Corporation (FDIC) announced depositors would be able to access all their money, the startup community is still feeling the repercussions.

What did the tech-focused commercial bank’s meltdown look like from an investor’s perspective? asked Bob Ciaruffoli, chair of Philly’s Broad Street Angels, an angel investing group affiliated with the Union League that invests in early-stage startups in the mid-Atlantic.

On Thursday, Broad Street Angels reached out to its portfolio companies and surveyed them about their “banking relationships,” he said. As an investor, there really wasn’t much to do by Friday morning.

“Fortunately, very few of our portfolio companies had any money with Silicon Valley Bank, and we started advising them to take it out,” he said. “But by the time many of them got started doing it, any transaction that anybody tried to make on Friday, no matter what time it was on Friday, showed up as ‘in process,’ but never concluded. The transactions were never completed.”

Once the news came around on Sunday that companies would be able to get their money out, Ciaruffoli said there was a widespread sigh of relief from the company leaders who used SVB. But more broadly, many tech execs — whether they banked with SVB or not — are reconsidering how they manage their money, and possibly moving their money around.

Ciaruffoli believes every company should have at least two banking relationships, no matter what may change with the FDIC. If a similar situation were to happen again, even if the money is covered, companies may not be able access it quickly enough to make payroll, he said.

He also expects there will be larger ramifications in the banking world. One of the lessons learned from the situation has been the importance of communication, he said: SVB didn’t do a good job of communicating to its clients, investors, depositors or the public.

And there are still unanswered questions about what will happen with government oversight, Ciaruffoli said. For example, is it current or strong enough? Do regulations need to be updated?

“The financial service industry has been morphing” since the Great Recession, he said, “and one question, in my mind is, have the regulations changed accordingly to meet the present banking environment versus what the banking environment was 10 years ago or 15 years ago?”

Sarah Huffman is a 2022-2024 corps member for Report for America, an initiative of The Groundtruth Project that pairs young journalists with local newsrooms. This position is supported by the Lenfest Institute for Journalism.
Companies: Silicon Valley Bank

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