As Garry wrote, companies would furlough before closing up shop. You get your paycheck, and then you're told you're furloughed until FDIC does their thing. This protects the company and the founders.
This may be better or worse for workers than being laid off.
That would certainly be better, but companies generally have more expenses than payroll. Lets say hypothetically I'm a healthy cloud computing provider startup and a bunch of revenue comes from startups. If those companies can't pay me, then I can't pay my own costs. That means I have to shut down and all the businesses on my platform get screwed over too.
Bigger companies will be able to float resources for a bit, but if it takes the FDIC more than a few months to sort it out there will be large second order effects.
I hope this hypothetical stays hypothetical, if the FDIC can announce that SVB has been acquired and all the deposits will be honored this will all be moot. But any company with a large deposit at SVB should probably be working off the assumption that they're going to have to make that $250k of insured deposits last for a while. At least until new information is released.
$250k will be in every account Monday morning, agreed on that.
It's everything above $250k, which is substantial, and which companies need, that will take a while to sort out. It's true that everything above $250k isn't covered by insurance, which means they may not get it, but SVB has assets, those assets will get sold, and first up to those assets is those who had bank accounts and to make them whole.
These are Chicken Little scare tactics, and it is disappointing he chose that.
I wonder how much of YC's reputation was destroyed yesterday by this self-serving attempt.
It is unlikely that these companies won't have access to enough of their deposits to make payroll, and even if that rare case occurs there are many many alternatives available to them-- bridging from their VCs, from private lenders, etc.
Tan yesterday sounded a lot like that Zero Hedge guy back in 2009.
> If this happens the companies will immediately close up shop.
If their bank accounts get frozen for a week, they'll just lay everyone off and then hire them all back a week later with a signing bonus to cover their missed days. No one is going to permanently shut down their company because their bank is closed for a couple days.
Maybe a few lucky executives will accidentally get their vesting accelerated, and a few startups that were on the brink of collapsing anyway might be pushed over the edge, but beyond that life will go on as usual.
If you are a director of a company facing such a situation, it's what you want to do. Because if you don't, you become personally liable for the missed payroll. Do you want to close up shop and say "this startup died because of SVB, on to start another one", but keep your car and your house, or do you want to risk losing literally everything you own and then end up with loads of new debt on top of that.
Depends if you think the eventual outcome is worth more. People used to second-mortgage their house to start small businesses where the best-case payoff is much less than these tech companies-- some of which are apparently the next Google or Facebook according to the head of YC on CNBC yesterday
