How the collapse of Silicon Valley Bank affected one startupNPR
Updated March 13, 2023 at 2:15 PM ET
Customers of now-collapsed Silicon Valley Bank are being told their money is protected and accessible. And speaking Monday morning from the White House, President Biden assured banking customers that the broader U.S. banking system is safe: “Your deposits will be there when you need them.”
Those customers include tech entrepreneurs like Tiffany Dufu. She’s the founder and CEO of The Cru, a startup that helps women achieve their personal and professional goals. Her company has its money at Silicon Valley Bank and late last week she found herself scrambling for the funds to make payroll.
Speaking on NPR’s Morning Edition, Dufu told Sacha Pfeiffer that she and many other tech founders don’t fit the Silicon Valley stereotypes.
“I think that sometimes when people think of a tech founder or the tech sector, they think of Mark Zuckerberg. I am African-American and I have two school age kids. I’m in my mid-40s. Founders are people who have a problem they’ve identified that they’re trying to solve for a consumer. In my case, one in four women have considered leaving their jobs in the past year, and we partner with their employers to try to ensure that they have access to the resources that they need.”
Dufu argues that she represents an especially vulnerable portion of the tech investment community.
“Less than 1% [of tech sector investment capital] goes to black female founders. So there are a lot of underrepresented founders and leaders in this community who were grossly impacted by this. There’s not a lot of liquidity. We don’t have large assets to draw on. And so this really created a crisis for us.”
Douglas Diamond, a Professor of Economics at the University of Chicago, focuses on banking systems and the forces that can lead to a bank’s collapse. That work earned him the 2022 Nobel Prize in Economics.
Diamond points to an area where Silicon Valley Bank violated basic banking practices, telling Morning Edition host Leila Fadel, “Banks do their magic by diversifying their asset risks, having lots of different types of loans, in particular, avoiding an overload at any particular risk. The one they loaded up on too much was interest rate risk. You’re also supposed to use diversified funding sources.”
Those gambles made the bank especially vulnerable to interest rate fluctuations. When rates were low, SVB was in solid shape.
“If interest rates went up a lot, they were going to become insolvent.”
Interest rates did go up and late last week SVB stumbled into insolvency. Diamond says that some of the blame may lie with the Federal Reserve Bank.
“Maybe the Fed should have been thinking, ‘I shouldn’t raise interest rates this quickly if it’s going to wipe out certain parts of the financial system'”.
For Dufu, the Silicon Valley Bank failure is distinctly personal. She felt she couldn’t wait around for the eventual fix by the FDIC that assured her company’s assets would be protected. She had a payroll to meet.
“I already had to step into gear. I already had to figure out how to transfer money from my personal account to make sure that my team was taken care of. And I’m a very fortunate person to at least have a savings account that I can draw upon. [It’s had] an enormous impact just on my well-being, my health and my sanity, let alone everything else that we’re already doing in order to keep these companies thriving and successful.”
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SACHA PFEIFFER, HOST:
Customers of now-collapsed Silicon Valley Bank are being told their money is protected and will still be accessible. Those customers include entrepreneurs like Tiffany Dufu. She’s founder and CEO of a tech startup called The Cru, and her company has its money in SVB, which failed Friday. Tiffany, thank you for joining us as you’re trying to sort through this crisis.
TIFFANY DUFU: Thank you for having me.
PFEIFFER: When did you find out what had happened?
DUFU: On Thursday morning, I started to receive news from the investors who have invested in The Cru that there was something going on with SVB. And me and my team immediately got on it. And I’m appreciative of my investors because I was just heads down, doing the work.
PFEIFFER: And what action did you take when you heard?
DUFU: We immediately, upon understanding that this bank was in trouble, tried to wire money that was in our account away from SVB. And we had some pending transfers, but ultimately were not successful.
PFEIFFER: So you did not get any of your money out?
PFEIFFER: Whirlwind of emotions, I’m sure.
DUFU: To say the least. I think that sometimes when people think of a tech founder or the tech sector, they think of Mark Zuckerberg. I am African American. I have two school-age kids. I’m in my mid-40s. Founders are people who have a problem that they’ve identified that they’re trying to solve for a consumer. In my case, 1 in 4 women have considered leaving their jobs in the past year. And we partner with their employers to try to ensure that they have access to the resources that they need and the peer coaching they need to be successful.
And so I’m working hard every day. I have investors. I have venture capitalists who have invested in The Cru, but we are not doing this for the big bucks. We have families. We have food that we need to put on the table. And particularly because we have team members, we have employees who work hard every day for our companies, it was incredibly stressful to not be able to potentially meet payroll. That is the biggest expense for an early-stage startup.
PFEIFFER: Well, I was going to say that this government intervention is being criticized by some people as a bailout for wealthy tech company owners. And it sounds like you feel like that’s a mischaracterization because many people’s paychecks depend on a lot of these companies, and they’re not rich people.
DUFU: Oh, absolutely. No one who – most of the people who are working at tech startups are not rich people. And I think that’s really the point, that there is a very diverse sector of the billions of dollars, yes, that are doled out in venture capital. Less than 1% goes to Black female founders. So there are a lot of under-represented founders and leaders in this community who were grossly impacted by this. And we’re vulnerable. There’s not a lot of liquidity. We don’t have large assets to draw on. And so this really created a crisis for us.
PFEIFFER: Now that the federal government says it will step in to protect customers like you and companies like yours, do you have clarity on how you can get access to your money again?
DUFU: I hope that by the end of the day, I will have that clarity. I don’t have complete clarity, but I do have confidence and was very relieved yesterday when the announcement was made that we’ll have access to all of our capital. But we still don’t, as of the moment that I’m talking to you right now.
PFEIFFER: Does that mean the next step for you and your team is just waiting?
DUFU: Well, we can’t wait. I already had to step into gear. Our payroll provider is TriMet. I, quite frankly, already had to figure out how to transfer money from my personal account to make sure that my team was taken care of. And I’m a very fortunate person that at least had a savings account that I could draw upon. But when I say that this is having an impact, it’s having an impact on people personally. I have a son who’s a junior in high school. You know, taking resources out of my personal finances in order to meet payroll for my team has an enormous impact just on my well-being and my health and my sanity, let alone everything else that we’re already doing in order to keep these companies thriving and successful.
PFEIFFER: A big reason the Biden administration has stepped in is to prevent this fear from becoming a contagion that could ripple through the whole banking system. What is your confidence in the overall banking system right now?
DUFU: Well, my personal money is with Bank of America. Despite everything that’s happened, I still have confidence in more established institutions that have been around for longer. That’s where I’ll be moving my money. I think, for me, the challenge is with the sector itself. I will not be banking with SVB. I don’t know what will happen with SVB in the future, but I do still have confidence in the overall banking system. So that’s not what was shaken for me. It was the personal and professional impact of just figuring out, what am I going to do with my company?
It is Women’s History Month. We are a company that’s focused on advancing women. And fortunately, for this month, we had already launched a Republic campaign, which is an equity crowdfunding campaign, and we were able to direct people who wanted to support The Cru to do that at republic.com. So we also had, thankfully, an opportunity to, you know, raise some more capital for the business in order to get us through this storm.
PFEIFFER: That’s Tiffany Dufu. She is CEO of tech startup The Cru, which matches women who want to collaborate on personal and professional goals. Tiffany, thank you.
DUFU: Thank you. Transcript provided by NPR, Copyright NPR.
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