A black weekend for Israeli high-tech after SVB collapse
Israeli high-tech firms and startups endured a weekend of anxiety and panic after the tailspin that led to the collapse of Silicon Valley Bank. Several Israeli companies rushed to get their money out of SVB and move it to other banks in the United States and Israel. According to LeumiTech, its teams helped its customers move about $1 billion to Israel.
People in the industry said at the end of the week that a good many Israeli companies had been able to get their money out in time, but that it was clearly not the case for everyone. In fact, the real situation in the country’s high-tech sector is unclear, as companies whose deposits are now locked will seek to conceal this, concerned that any rumors might drive away customers, suppliers and employees.
One industry figure said there’s a startup that has tens of millions of dollars of deposits in SVB, about 90 percent of its money. “They have a few million dollars in Israel,” he said. “Under those circumstances, you have to be prepared to fire the whole company within a few months. There are also [companies] that have 100 percent of their deposits in SVB.”
“I’ve never experienced a situation like this,” said the CEO of an Israeli startup that has about $1 million in SVB, a small but significant amount of its capital. On Thursday afternoon, he said, he noticed a sharp drop in the bank’s stock. A few hours later, he started getting WhatsApp messages and phone calls from one of the board members, telling him to get the money out right away.
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“I told [the employees] to drop everything and get the money out. The order went out at 8 P.M., then we started going crazy because the order didn’t go through. The hours passed, the news piled up.” The billionaire entrepreneur and venture capitalist Peter Thiel said to take the money out, he said.
“Suddenly,” the CEO continued, there was a run on the bank. “This is something you read about in books, but not only is it something that I’ve never experienced, I never thought in a million years that it was possible with SVB, a bank with a strong reputation and brand, considered the number one bank for startups. What can you depend on? Money in the bank. And suddenly, even what you think is the most basic foundation of your work, is undermined.”
High-tech entrepreneur
The CEO described his efforts to “rescue the money” after SVB failed: “All night I’m going nuts, the board is pressuring me. And we did take the money out within an hour but the transfer didn’t move. I’m shouting at everyone, at the bank’s representatives, the accountant, anybody who can; they tell me it’s all right, the money was out. But it wasn’t out.”
Then, on Friday, the CEO said, government regulators shut the bank down. “Now I have no confirmation that the money left. I’m guessing it didn’t – although people who got their money out after us did succeed. For some reason, there’s a question only about us.”
That entrepreneur is not alone; that’s already clear. The guide to high-tech companies published on Sunday by the high-tech and venture capital firm Gross Co. stated that on Thursday and Friday many customers instructed that the cash in their accounts at SVB be moved to other banks or financial institutions.
It noted that several of these transfers had not gone through yet, and said that in general, the validity of these transfers made on the eve of the bank’s collapse was uncertain. According to Gross Co., there was a chance that the transfers would be seen as void or would not be honored, Gross Co. said.
“This amount is equal to 4-5 months of activity of your startup,” said the CEO. “I’m responsible for them and they have disappeared, and it’s not because I made a mistake. There is talk that some of the money will be returned. That doesn’t comfort me. The level of certainty is zero. Leading a startup is hard. There’s always uncertainty, and things happen that you don’t anticipate. The market moves and the technology changes.”
So many messages WhatsApp crashed
Other entrepreneurs told similar stories. “Everything happened really fast,” said one. ‘‘There were slight murmurs about the bank’s situation and on Friday, the quick decline began. Suddenly my WhatsApp crashed from so many messages – investors, my lawyers, everybody wanted to know what’s happening and what’s with our money.
“We have more than $1 million with SVB, but they were a loan from the bank itself – a loan that we were going to pay off because we saw we could manage without it. But obviously, that’s not a reason to run and take the money out. But neither does it mean that we’re immune to damage, if a domino effect starts as a result of this collapse, it will get to us too – customers, investors, etc.”
According to the entrepreneur: “SVB’s expertise is in startups, and here this bank is considered the consensus for Israeli startups. It’s the first American bank they’ll turn to. I hear from colleagues that they’ve had hundreds of millions of dollars frozen. Some managed to withdraw, and those who didn’t are in trouble.
“It’s almost the 15th and salaries are due. Of course, some companies will be able to get through the 15th because their investors will back them, or they have money in other banks. But some won’t, those that have most of their money in SVB and can’t do anything now. Some were also counting on a loan from SVB.”
Another entrepreneur with exposure because of SVB added: “We managed to get part of our money out of SVB before the FDIC took over its assets, but there’s quite a bit still there.
“Luckily for us, we have a lot of money in other accounts so there’s no immediate impact on the company’s activity and from what we hear, we’re optimistic that the money will be returned in a matter of a few months. Of course, it’s a blow to the company and the industry in times that are not at all easy even before this happened.”
Uncertainty
The entrepreneurs’ uncertainty about their funds remaining in SVB will continue for at least the coming days, until the situation clears up. According to reports, all depositors are supposed to receive $250,000 on Monday. And what about beyond this sum?
According to the Gross Co. guide, in the coming days, the FDIC or its appointed representative will examine the ratio between the bank’s deposits and its debts, and will then order that a dividend be distributed to every depositor. Another possibility is that a third party will buy up the bank’s assets, including its debts, and in that case, the deposits might be paid out by that entity.
Meanwhile, the Israeli banks Leumi, Hapoalim and Discount announced a number of actions to provide immediate solutions to companies that find themselves in trouble, such as credit lines and bridging loans. The government is also considering intervening.
Finance Minister Bezalel Smotrich tweeted Saturday: “Following the collapse of SVB in the United States and the possible impact on Israeli high-tech firms, I have decided to establish a dedicated team for tracking this issue. The team will be headed by Finance Ministry Director General Shlomi Heisler, and will be made up of representatives of the Finance Ministry, the Bank of Israel, the Israel Securities Authority and the Innovation Authority.
“The team will be in contact with the local high-tech industry, the funds and institutions in Israel and the United States to obtain data and analysis of the possible impact on the Israeli economy, and as needed, to formulate a solution for the Israeli companies.”