![]() Venture debt has been increasing in popularity “It’s problematic because banks use big loans to get big, but, as it turns out, very flighty balances onto their balance sheet,” he said. It’s a common practice for most banks to use venture debt as an anchor to have startups move their balances to them, said Oleg Rogynskyy, founder and CEO at People.ai, who said SVB was particularly focused on this practice. Representatives from Avidbank and Bridge Bank didn’t immediately respond to requests for comment. Other venture debt lenders such as Avidbank and Western Alliance Bank's Bridgebank also rely on similar contractual obligations to protect their investments, one of the founders told LinkedIn News anonymously, so as not to disparage any future relationships with them. It’s not just Silicon Valley Bank that had such exclusivity clauses with The Flex Company, UNest, Winnie and others including DocuSign and Sprout Social, as CNBC reported. “What I did not fully realize was our account would be completely frozen, and even the credit card would be shut off.” “We thought that was our safety net, and we should have still had access,” Mauskopf said. The saving grace was that most of Winnie’s cash was in what’s known as a “sweep account,” which are relatively safer as they allow a company to use one bank, but disperse the funds over multiple accounts so each is insured within the $250,000 FDIC cutoff. Winnie had a line of venture debt with SVB that had remained untouched, but it was contingent on the company keeping all its cash at the bank and using it as their main credit card provider. Sara Mauskopf, CEO and co-founder of child-care marketplace Winnie, was in a similar predicament. “Venture debt requires you to move all your money to one bank, and that needs to change. “Right now, we are working on what we can control – but once the dust settles, the industry needs to rethink venture debt financing,” she said. The company’s operating accounts and payroll system were both set up at SVB due to a venture debt financing deal with the bank. Ksenia Yudina, founder and CEO of UNest, an investment accounting app aimed at parents, is one such founder. ![]() And some are turning their ire toward what they regard as predatory venture debt financing deals. While relief came for startup clients late Sunday night when federal regulators announced that SVB depositors would be made whole, some are still reeling from the events of the past week, when they were locked out of their accounts and left scrambling for cash to make payroll. ![]() “Covenants tied to lines of credit can be very challenging.” Founders say venture debt needs an overhaul “It always seemed a bit predatory,” Wang said. So when the bank failed, they either faced the very real prospect of their businesses shuttering overnight – or they risked violating the terms of their venture debt loans with the bank. The AR line provided her company access to short-term working capital – using her accounts receivable as collateral, she said.Īt least five other founders told LinkedIn News that they too had parked most of their money at SVB due to financing or credit solutions that the bank offered to early-stage startups like theirs, which locked them into exclusivity clauses of varying scopes, and limited their ability to diversify. Wang was tied to SVB because of an Accounts Receivable (AR) Line of Credit that she had with the bank, which meant all her deposits sat with SVB too. But she panicked as she was one among several founders caught in the crosshairs when the once-storied tech institution came tumbling down last week after a bank run. She wouldn’t have been as worried had her startup, The Flex Company, not done all of its banking with SVB. Lauren Wang was on the floor of the consumer packaged goods trade show Expo West at the Anaheim Convention Center last Thursday when she began receiving frantic texts from fellow founders about Silicon Valley Bank. ![]() Zooming InĪ deep-dive into one big theme or news story every week. Follow me on LinkedIn for other tech updates. Welcome to this special edition of LinkedIn News Tech Stack, which brings you news, insights and trends involving the founders, investors and companies on the cutting edge of technology.Īs always, let me know if you have ideas or feedback on something that could be a fit by sending me an InMail. ![]()
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