Silicon Valley investors and founders express shock over SVB’s collapse, describe struggles to get money out
Venture capitalists and technology executives are scrambling to make sense and account for the potential repercussions of the sudden implosion of Silicon Valley Bank on Friday.
The Federal Deposit Insurance Corp. said Friday that U.S. federal regulators shut down Silicon Valley Bank, the premiere financial institution for Silicon Valley tech startups for the past 40 years. The collapse of SVB represents the biggest banking failure since the 2008 global economic crisis.
Numerous venture investors and technology executives expressed shock to CNBC, some comparing SVB’s debacle to that of Lehman Brothers, which filed for bankruptcy in 2008. Many of the investors and execs requested anonymity as they were discussing matters that might affect their firms and employees.
General sentiment is that SVB did a poor job communicating to clients when it announced earlier this week that it would be raising $500 million from venture firm General Atlantic while also unloading holdings worth roughly $21 billion at a loss of $1.8 billion. One VC said that SVB announcing that it’s raising money while at the same time essentially saying that everything is “fine,” seemed to trigger people’s memories of Lehman Brothers, who they remember acted similarly at the time.
“So unfortunately, they repeated mistakes in history, and anyone who lived through that period said, ‘Hey, maybe they’re not fine; we were told that last time,’” the VC said.
SVB attempted to quell fears that it was financially unsound as late as Thursday evening.
In one email that SVB sent to a customer, a copy of which CNBC obtained, the bank characterized the rumors about its problems as “buzz about SVB in the markets” and attempted to reassure the customer that it “launched a series of strategic actions to strengthen our financial position, enhance profitability and improve financial flexibility now and in the future.”
“It is business as usual at SVB,” the bank said in the email to startups. It added toward the end of the email, “Moreover, we have a 40 year history navigating bear and bull markets and have developed leading risk mitigation capabilities to ensure our long term financial health.”
Another venture capitalist said that a representative from Silicon Valley Bank called their firm on Thursday to assuage their fears but that the firm’s CFO “didn’t feel that it was reassuring, to say the least.”
However, one tech CEO was sympathetic to the bank’s plight, asking, “What message would ever reassure you that your money is safe when other people are telling you that there’s a fraud happening? There’s no message, because it’s not a messaging thing. It’s the prisoner’s dilemma thing … Everybody at that moment now has to try and imagine what everybody else is going to do.”
When asked for comment, a representative from SVB referred CNBC back to the FDIC announcement, adding, “The FDIC will share additional information when it is available.”
‘A Twitter-led bank run’
Several venture capitalists quickly told their portfolio companies to move money out of Silicon Valley Bank to other banks, including Merrill Lynch, First Republic and JP Morgan, so they could pay their employees on time next week.
One AI startup executive said the company’s chief financial officer was quick to handle the situation and it had enough money to pay employees on time. Still, the collapse of SVB left a poor taste in the mouth of the executive, who said the bank’s collapse feels like “unnecessary hysteria.”
“It makes me disappointed in our ecosystem,” the startup CEO said.
Many venture capitalists echoed the startup CEO’s sentiment that the SVB collapse felt like a self-fulfilling prophecy created by unnecessary panic. Some likened it to a “Twitter-led bank run,” as the tech community took to social media to spread information, and, often, panic. One prominent technology CEO told CNBC that numerous startup founders were using Twitter and Meta‘s communication service WhatsApp to send each other rapid-fire updates.
One venture capitalist said it was as if someone screamed “fire in a crowded theater where there is no fire.”
“And then when everyone rushes to the door, they knock over the oil lamp and there is a fire and it burns down the building,” the venture capitalist said. “And then that same person [is] standing outside being like, ‘see I told you so.’”
‘Everyone is scrambling’
As the panic spread and the FDIC stepped in, companies with funds locked up were reporting problems getting cash out and making payroll.
One startup founder told CNBC that “everyone is scrambling.” He said he has talked to more than 30 other founders, and that both big and small companies are being impacted.
The founder added that a CFO from a unicorn startup has tried to move more than $45 million out of SVB to no avail. Another company with 250 employees told the founder that SVB has “all our cash.”
Another founder said her company’s payroll provider moved from SVB to another bank on Thursday, which meant payroll did not run for employees as planned Friday morning. She said she has been over-communicating with employees to alleviate their concerns as much as possible, and she is expecting payroll to hit by the end of the day Friday.
In the case that it doesn’t, the company is planning to wire employees who need immediate spot coverage the funds directly, according to an internal memo viewed by CNBC.
“A lot of people live down to the dollar in terms of budgeting, and they cannot afford 24 hour delay in their payroll,” the founder said.
Payroll service provider Rippling notified some customers Friday that their payments would be delayed due to the bank’s “unexpected solvency challenges,” CEO Parker Conrad wrote in a tweet. The company accelerated a plan to switch from SVB to JPMorgan Chase, but not in time to avoid stalled payments.
Aaron Rubin, CEO of e-commerce logistics startup ShipHero, said he was forced to manually pay some employees on Friday, as his company relies on Rippling for payroll services.
“We found out this morning that no one got paid,” he said. “We started to manually pay our warehouse employees because we didn’t have time to manually send payments to everyone.”
Warehouse staffers make up roughly a third of ShipHero’s 600 person headcount, Rubin said. Remaining staffers, which mostly include customer service and tech employees, will get paid next week.
“Our concerns are longer term,” Rubin added. “Could some of our customers have liquidity issues? I don’t think we know those ripple effects yet. Are we going to have issues getting paid from our customers because they’ll have issues?”
Jean Yang, the founder and CEO of monitoring company Akita, attempted to perform a wire transfer to ensure she could make payroll for her seven-person team, then drove to the SVB location on Sand Hill Road in Menlo Park, a street populated by venture-capital offices.
There, she asked a teller for a bank transfer and was told the branch couldn’t do it. So she asked for a cashier’s check for $1 million. After 20 or 25 minutes the bank handed it over.
Others in line were taking out their entire balance. “I regret not taking out our entire balance now,” she said.
On Frida, Yang returned to the Silicon Valley Bank branch 15 minutes before it opened to remove the remaining money. A line of about 40 people had formed. Gossip spread among those waiting. One person showed a tweet on their phone suggesting that bank employees had been instructed not to come to work.
Then an employee came out of the office and offered about 15 copies of an article from the Federal Deposit Insurance Corporation on the agency’s response to the bank’s situation. The line disbanded as people realized the bank’s fate.
Later on Friday one of the startup’s investors called Yang and offered to help Akita make payroll, she said.”My hope is that the government bails out people past $250,000,” she said. “I know people with tens of millions, hundreds of millions with SVB. I think if they only get $250,000, their companies are going to be wiped out.”
“Now, everyone’s waiting to see when the Treasury will step in,” said another venture investor. “Hopefully [California Governor] Gavin Newsom is calling Biden right now and saying, ‘This is systemic in our area, but you can see the ripple effects on other banks and their equities and their bonds.’ If it’s systemic, I think the Treasury will step in like 2007 and ’08 and protect the money market accounts, plus will protect the depositor.”
This person added, “If they don’t step in, then people will presume that money’s lost. That’s going to have huge ramifications on the business environment.”
Amazon to lay off 9,000 more workers in addition to earlier cuts
The latest round will primarily impact Amazon’s cloud computing, human resources, advertising and Twitch livestreaming businesses, Jassy said in the memo.
Amazon is undergoing the largest layoffs in company history after it went on a hiring spree during the Covid-19 pandemic. The company’s global workforce swelled to more than 1.6 million by the end of 2021, up from 798,000 in the fourth quarter of 2019.
Jassy is also undergoing a broad overview of the company’s expenses as it reckons with an economic downturn and slowing growth in its core retail business. Amazon froze hiring in its corporate workforce, axed some experimental projects and slowed warehouse expansion.
While the company aims to operate leaner this year, Jassy said he remains optimistic about the company’s “largest businesses,” retail and Amazon Web Services, as well as other, new divisions it continues to invest in.
Shares of Amazon were down more than 2% in afternoon trading Monday.
Let me share some additional context.
As part of our annual planning process, leaders across the company work with their teams to decide what investments they want to make for the future, prioritizing what matters most to customers and the long-term health of our businesses. For several years leading up to this one, most of our businesses added a significant amount of headcount. This made sense given what was happening in our businesses and the economy as a whole. However, given the uncertain economy in which we reside, and the uncertainty that exists in the near future, we have chosen to be more streamlined in our costs and headcount. The overriding tenet of our annual planning this year was to be leaner while doing so in a way that enables us to still invest robustly in the key long-term customer experiences that we believe can meaningfully improve customers’ lives and Amazon as a whole.
As our internal businesses evaluated what customers most care about, they made re-prioritization decisions that sometimes led to role reductions, sometimes led to moving people from one initiative to another, and sometimes led to new openings where we don’t have the right skills match from our existing team members. This initially led us to eliminate 18,000 positions (which we shared in January); and, as we completed the second phase of our planning this month, it led us to these additional 9,000 role reductions (though you will see limited hiring in some of our businesses in strategic areas where we’ve prioritized allocating more resources).
Some may ask why we didn’t announce these role reductions with the ones we announced a couple months ago. The short answer is that not all of the teams were done with their analyses in the late fall; and rather than rush through these assessments without the appropriate diligence, we chose to share these decisions as we’ve made them so people had the information as soon as possible. The same is true for this note as the impacted teams are not yet finished making final decisions on precisely which roles will be impacted. Once those decisions have been made (our goal is to have this complete by mid to late April), we will communicate with the impacted employees (or where applicable in Europe, with employee representative bodies). We will, of course, support those we have to let go, and will provide packages that include a separation payment, transitional health insurance benefits, and external job placement support.
If I go back to our tenet—being leaner while doing so in a way that enables us to still invest robustly in the key long-term customer experiences that we believe can meaningfully improve customers’ lives and Amazon as a whole—I believe the result of this year’s planning cycle is a plan that accomplishes this objective. I remain very optimistic about the future and the myriad of opportunities we have, both in our largest businesses, Stores and AWS, and our newer customer experiences and businesses in which we’re investing.
To those ultimately impacted by these reductions, I want to thank you for the work you have done on behalf of customers and the company. It’s never easy to say goodbye to our teammates, and you will be missed. To those who will continue with us, I look forward to partnering with you as we make life easier for customers every day and relentlessly inventing to do so.
OpenAI CEO Sam Altman says he’s a ‘little bit scared’ of A.I.
David Paul Morris | Bloomberg | Getty Images
OpenAI developed the ChatGPT bot, which creates human-like answers to questions and ignited a new AI craze.
“I think people really have fun with [ChatGPT],” Altman said in the interview.
But his excitement over the transformative potential of AI technology, which Altman said will eventually reflect “the collective power, and creativity, and will of humanity,” was balanced by his concerns about “authoritarian regimes” developing competing AI technology.
“We do worry a lot about authoritarian governments developing this,” Altman said. Overseas governments have already begun to bring competing AI technology to market.
Chinese tech company Baidu, for example, recently held a release event for its ChatGPT competitor, a chat AI called Ernie bot.
Years before Russia’s invasion of Ukraine, Russian President Vladimir Putin said whoever becomes the leader in AI technology “will be the ruler of the world.” Altman called the comments “chilling.”
Both Google and Microsoft have aggressively stepped up their AI plays. Microsoft chose to partner with Altman’s OpenAI to integrate its GPT technology into Bing search. Google parent Alphabet unveiled an internally developed chatbot called Bard AI, to mixed feedback from Google employees and test drivers.
The influence of ChatGPT and AI tools like it hasn’t yet reverberated through the American election process, but Altman said the 2024 election was a focus for the company.
“I’m particularly worried that these models could be used for large-scale disinformation,” the CEO told ABC.
“Now that they’re getting at writing computer code, [models] could be used for offensive cyberattacks,” he said.
ChatGPT’s programming prowess has already made a mark on many developers. It already functions as a “co-pilot” for programmers, Altman said, and OpenAI is working toward unlocking a similar functionality for “every profession.”
The CEO acknowledged that it would mean many people would lose their jobs but said it would represent an opportunity to come up with a better kind of job.
“We can have a much higher quality of life, standard of living,” Altman said. “People need time to update, to react, to get used to this technology.”
Microsoft is using OpenAI to make it easier for doctors to take notes
Chesnot | Getty Images
DAX Express aims to help reduce clinicians’ administrative burdens by automatically generating a draft of a clinical note within seconds after a patient visit. The technology is powered by a combination of ambient A.I., which forms insights from unstructured data like conversations, and OpenAI’s newest model, GPT-4.
Diana Nole, the executive VP of Nuance’s healthcare division, told CNBC that the company wants to see physicians “get back to the joy of medicine” so they can take care of more patients.
“Our ultimate goal is to reduce this cognitive burden, to reduce the amount of time that they actually have to spend on these administrative tasks,” she said.
Microsoft acquired Nuance for around $16 billion in 2021. The company derives revenue by selling tools for recognizing and transcribing speech during doctor office visits, customer-service calls, and voicemails.
DAX Express complements other existing services that Nuance already has on the market.
Nole said the technology will be enabled through Nuance’s Dragon Medical One speech recognition application, which is used by more than 550,000 physicians. Dragon Medical One is a cloud-based workflow assistant that physicians can operate using their voices, allowing them to navigate clinical systems and access patient information quickly, Clinical notes generated by DAX Express will appear in the Dragon Medical One desktop.
DAX Express also builds on the original DAX application that Nuance launched in 2020. DAX converts verbal patient visits into clinical notes, and it sends them through a human review process to ensure they are accurate and high-quality. The notes appear in the medical record within four hours after the appointment.
DAX Express, in contrast, generates clinical notes within seconds so that physicians can review automated summaries of their patient visits immediately.
“We believe that physicians, clinicians are going to want a combination of all of these because every specialty is different, every patient encounter is different. And you want to have efficient tools for all of these various types of visits,” Nole said.
Nuance did not provide CNBC with specifics about the cost of these applications. The company said the price of Nuance’s technology varies based on the number of users and the size of a particular health system.
DAX Express will initially be available in a private preview capacity this summer. Nole said Nuance does not know when the technology will be more widely available, as it will depend on the feedback the company receives from its first users.
Patient information is particularly sensitive and regulated under HIPAA and other laws. Alysa Taylor, a corporate vice president in the Azure group at Microsoft, told CNBC that DAX Express adheres to the core principles of Microsoft’s responsible A.I. framework, which guides all A.I. investments the company, as well as additional safety measures that Nuance has in place. Nuance has strict data agreements with its customers, and the data is fully encrypted and runs in HIPAA-compliant environments.
Nole added that even though the A.I. will help physicians and clinicians carry out the administrative legwork, professionals are still involved every step of the way. Physicians can make edits to the notes that DAX Express generates, and they sign off on them before they are entered into a patient’s electronic health record.
She said, ultimately, using DAX Express will help improve both the patient experience and the physician experience.
“The physician and the patient can just face one another, they can communicate directly,” Nole said. “The patient feels listened to. It’s a very trusted experience.”
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