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Billionaire Mark Cuban wants the Fed to buy Silicon Valley Bank’s debt, immediately. If the Fed doesn’t respond quickly, he believes the financial sector will be shaken by the SVB shutdown. And smaller tech startups and their employees will be hurt the most.

On Friday night, Elon Musk, indicated he was “open to the idea” of buying Silicon Valley Bank. In the meantime, he is laying the groundwork to creating some universal Twitter payments on the platform.

SVB shutdown will impact small tech companies.

SVB was intentionally the tech industry bank. They wanted to be vested in the future. And tech was booming until just a few months ago.

On Friday, SVB failed following a run on the bank. On Thursday, investors and depositors tried to withdraw $42 billion in a 24-hour period.

When the regulators shut it down it gained the dubious distinction of being second-biggest bank failure in US history. And Washington Mutual in 2008 was the biggest.

 There is a wide variety of opinions on how to avoid a full-scale banking crisis. Tech companies, entrepreneurs, and investors are all worried. And wondering how next week will play out.

Investors were urging their portfolio companies to allocate money to other banks so they could pay their employees on time.

Silicon Valley Bank (SVB) is perhaps the largest financial institution that caters specifically to technology startups. And the fear is that the bank's recent shutdown will cause significant problems for its customers. And the list includes most of the smaller AI startups.

 With many businesses unable to access their funds, the concern is that they will not be able to pay their employees starting next week.

Cuban has posted on Twitter about the issue, calling on the Federal Reserve to step in and buy all the securities/debt the bank owns at near par. This move, he argues, would be enough to cover most deposits and protect the thousands of companies who borrowed from SVB. And all borrowers were required to keep their cash in SVB.

One such company is Capsule, a small AI video production startup that recently closed a $5 million fundraise. However, the team is now unable to access those funds due to the SVB shutdown. Co-founder Champ Bennett tweeted that while it is embarrassing to reveal publicly, he feels obligated to tell their story to combat some misconceptions.

What happens next?

The Federal Deposit Insurance Corporation (FDIC) has taken control of SVB's assets, but the insurance only tops out at $250,000. This leaves many startups with far more in the bank. 

The FDIC has said that customers will have access to their insured deposits on Monday and will pay uninsured depositors an "advance dividend" within the next week. However, it remains unclear what that will amount to and when it will arrive.

The concern is that if the advance dividend is too small, there will be a contagion effect, causing widespread problems for many startups and their employees.

 Former Treasury Secretary Larry Summers has warned that there are dozens, if not hundreds, of startups planning to use that cash to meet their payroll next week, and if that is not possible, the consequences will be severe for the innovation system.

The call for the Federal Reserve to step in and protect these businesses is growing louder. The hope is that swift action can be taken to prevent the worst-case scenario from becoming a reality. And a myriad of startups can access their funds to pay their employees so they can continue their innovative work.