Startups concerned about employee pay after SVB collapse

(Bloomberg) — Startup founders are beginning to worry about their ability to keep paying their employees after the collapse of Silicon Valley Bank.

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Payroll service provider Rippling told customers on Friday that some payroll processing had stalled because SVB was helping to process its payments. The company, itself a startup, switched to JPMorgan Chase, but not soon enough: Paychecks were already “in flight” with the SVB and are yet to be paid — and the firm is still trying to understand what the bank’s collapse on Friday means will work for them, Rippling Chief Executive Officer Parker Conrad said in a Twitter post.

Startup founder Brad Hargreaves said some firms may not be able to file payroll next week. And because boards are incredibly sensitive to hiring workers they can’t pay, he said, “Expect mass layoffs later today, no later than Monday.”

Sarika Bajaj, the CEO of early-stage startup Refiberd, said she has been a client of Silicon Valley Bank for three years and has kept most of the company’s funds there. Bajaj, who was at SVB’s Sand Hill Road branch in California on Friday, tried to make withdrawals but was unable to and is increasingly concerned about payroll for her and her two team members.

“I’m sure there are a lot of people here with many, many employees,” she said. “It’s not our reality, but I know it will be a lot of people’s reality.”

More than half of tech companies “keep the lion’s share of their cash with SVB,” said Greg Martin, founding partner at investment firm Liquid Stock. “They all have to do their payroll early next week.”

Martin said he believes the bank is healthier than people think. But the worst-case scenario, he said, is that “tens of thousands of people” go unpaid next week.

At least one startup was planning layoffs today, but Silicon Valley Bank’s situation forestalled those plans because the company that banked with SVB no longer had the capital to pay a severance package, according to a person with knowledge of the matter.

Conversely, other startups are considering layoffs due to the SVB situation because it’s illegal to employ employees without paying them, this person said. Furlough was also considered to put staff back on the payroll when monies come in. Startups are feverishly discussing their options with lawyers, the person added.

(Updates with details on a startup delaying layoffs in the last paragraph.)

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