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.
5. The Fed should IMMEDIATELY buy all the securities/debt the bank owns at near par, which should be enough to cover most deposits. Any losses paid for in equity and new debt from the new bank or whoever buys it. The Fed knew this was a risk. They should own it
— Mark Cuban (@mcuban) March 11, 2023
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.
