On Silicon Valley Bank with Eric Vishria

Awesome.

Well, great. Eric, again, thank you so much for being with us. It has been a wild, wild week. I mean, you never want to say unprecedented, Eric, but I think it's fair to say that this is not something we have seen in the startup ecosystem, at least in my lifetime. Maybe, I don't know, maybe this happened in the '70s or something.

I totally agree. And it's also, it's funny because everything breaks in a different place. Like, I think one of my big observations is like, What broke here were checking accounts, but what broke in '08 were money market funds, right? And so we're always fighting the last war and there's always all these other pieces of it. But yeah, it's definitely been chaotic.

It has been chaotic. And we kind of joke because we use Gusto as our payroll provider and we've always joked about they have this kind of celebratory email they send you like, oh, you're getting paid today.

Hooray.

Last of the month. Congratulations, you're getting paid. It's like, actually, it makes me more nervous that you're treating this like something that requires celebration.

Yeah.

It's like, why are you sending me an email like, holy shit, that worked? Like, that should not be an email that you send me.

Congratulations, your money's still here.

Right. And so we, we have made fun of that for as long as we've been at Gusto. It was basically the lifetime of the company. And I would like to formally and on the record Apologize to Gusto for treating payroll so lightly. Payroll is something that deserves to be celebrated, and I appreciate that email. I never appreciated it more than this week when we we payroll. So I want to give a couple so some context and background, and then so a couple of things. One, we're obviously talking about the the SVB failure. and subsequent backstop. And what we're not gonna do is talk about a bunch of the stuff that's already been talked about, we think, and Eric, I'm sure you agree, kind of ad nauseam. So we're not gonna talk about why SVB got into the pickle they got into. We're definitely not gonna talk about the backstop that was provided by the FDIC. We are, in part because that's been talked about a lot and also because All of us here are on stage anyway, are not going to disagree with what was done. I think we all think that the right thing that was done here in terms of making depositors whole. What we do want to talk about, and I think, Erica, what has not been talked about nearly enough, is the role of banking for startups and what is— because it is weird for startups.

Mm-hmm.

And in particular, why were so many startups banking with SVB? So I think for that, I'd like to, if you don't mind, I'd like to kick us off, Steve, with you describing the Oxide history with respect to banking. And then in terms of like why we were, we, and just for the, for the record, we are 100% at SVB. I had mentioned this in a Hacker News comment, but we were required to be at SVB as part of a covenant our venture debt, which we'll get into in a second. And then, Eric, what I'd like to do is use that as a segue, and you can let us know if, like, you know, we're a total outlier or not. I think that we are maybe a little bit of an outlier, but I think there are obviously a lot of startups that were in our same position. So, yeah. Steve, do you want to kick us off by taking us back to 2019? And we had started— because this is something that is, that is hard to understand about startups. It makes startups weird. We start the company on September 9th, 2019. And with $7,500 or whatever it was, whatever kind of like very— we had kind of capitalized it just with the founders with effectively nothing.

And you do need somewhere to put that.

You need somewhere to put that. And what we know is that we are about to raise a big seed. So we were looking to raise a $20 million seed and we know that we're about to have millions of dollars. But for a bank, that's like, okay, yeah, sure, pal.

Yeah, you're starting with a very small deposit and you've got it, but I mean, that's part of founding. You can't start the company until you have written checks against that first set of shares, and then you have to go deposit those checks. And so yeah, we were starting from where to go deposit funds, and then yes, planning that we were going to have millions of dollars we were going to need to do something with.

In short order, and we initially banked with First Republic.

That's right.

Which was on I think on advice from actually a bunch of folks. Yeah, this one of the myths that I would like to bust is this idea of like oh the VCs made you bank at SVB.

If we only had that kind of power.

Totally exactly. It's like no, the VCs were but we were talking entrepreneurs, talking to friends, talking to family. It's like okay, we're going to go back at First Republic.

And I think the thing that, again, became more apparent a little bit later on, but what we had heard at the time from folks that were founders, were operators, was that First Republic really cares about startups. And it's important. It kind of impressed upon us, which was not our initial disposition, that like your banking partner is going to be a really important partner, certainly because early on you're thinking about, well, what the hell are we going to build? And you come to learn, especially in hard tech or when you're dealing with hardware, that your banking partner is a very, very, very, very important part of the business. And so early on it was— there's a handful of banks that actually think of startups as first-class citizens and they actually care about investing in those relationships. And so on the advice of others, we started with First Republic.

Started with First Republic. And as I recall, there was a marked difference between our account when it had $7,500 in it and our account when we deposited the early close on that $20 million, which was a $12 million check.

Yeah. Many more people woke up.

Right.

And I just recall you like really struggling to get the time of day with First Republic and then not so many struggles.

But I mean, at least getting the time of day with First Republic early on versus some of the bigger banks.

And did you actually shop around? I can't even remember how much shopping around we did for other banks at that time.

Cursory.

Cursory, right?

Yeah.

Because it's not something we're focused on.

It's not a top 10, right?

Okay.

So we started the First Republic.

Started the First Republic.

We did our raise.

We did our raise. They go from, again, being not really treating us very seriously to— I just remember them calling you tickets. Yeah. Well, no, actually, absolutely.

You're going to go.

Of course I was going to go there. They went from the— and someone in the channel had Dropped in. Mitchell Hashimoto from HashiCorp had his startup banking story. We had, I mean, a kind of a—

Which is hilarious. If you've not read it, like, definitely give it a read. It slayed.

It is. And it's— and so we all of a sudden, First Republic is— I feel it was like very shortly after the wire hit that First Republic is calling you up, offering you free things.

Yes.

Yeah. Yes.

And this is not a foreshadowing of playing into the the overspending of, of these banks. But they definitely— we were a VIP very quickly. And in particular, one of the things that they offered was a suite, tickets to a suite at a Chainsmokers concert.

Right. And I just remember you like putting on mute, being like, does anyone even want the Chainsmokers? I'm like, take it. Like, whatever they're offering, take it. Like, we're just like, whatever it is.

No, thank you. Wait.

Right.

And so my kids went to a Chainsmokers concert. My kids went. And I just remember drilling my now 15-year-old, then 11-year-old, 12-year-old. I'm like, who does Oxide bank with? He's like, First Republic Bank. First Republic. He's like a First Republic Bank ad because I think he's going to go into the suite where he's going to get quizzed. He goes into this huge suite at this end. Of course, the boys were like, oh my God, it was amazing.

We were right.

He's like, there was no one in there. And my now 15-year-old is like, Dad, I want you to know I ate all the sushi. And I'm like, good boy.

Best ROI you can get. Exactly.

So anyway, so we were at First Republic for, and they're terrific.

I really, really liked those folks over there. They, I mean, again, on the back of having large deposits, sure, but tremendous service and made it easy for us to focus on the rest of the business. And then a couple years in, we probably a year, year and a half in, we're as you know, folks that are kind of pre-revenue and are trying to get to the next set of milestones want to do is we were looking at, you know, what are the things that we need to do to extend our runway?

And—

I don't know if it's the true genesis or not, but this definitely— I mean, we had heard of venture debt, but I had a fellow parent at a scout troop. He and I are on a long hike, and he was asking us about fundraising, and he had done food-based startups. He'd done Kite Foods and Fork in the Road. And he's like, you guys really need to be looking at venture debt.

All right.

Okay. And I remember then you really like, what is venture debt? So maybe you want to explain to folks what venture debt is and why it was important to us.

Yeah. And maybe even going back further, like why we originally started out with a disposition against venture debt.

Yeah.

I mean, when we started the company, there were definitely folks that would warn. I mean, it makes sense. You do not want to pile debt on a company until you have more certainty around cash flow and operability of the business. And so early on, I think we both had a disposition of venture debt is not something that we wanted to look into seriously. But anyway, so to the question of what is venture debt, I'm not the not the foremost expert, but I think just in basic form, it is a product that banks offer where the payback on the debt is more focused around equity than it is focused around cash flow. So a typical loan given to a company is going to be made based on being paid back on cash flow, and in venture debt, it is The bank is getting a good interest return, and then they are getting a— they're getting normally small, but they're getting warrants on the company itself. And in the cases of companies like Coinbase and Stripe and others, those can be very, very, very—

Meaningful.

Meaningful return type of products. Obviously, it's a riskier investment, and banks have to keep more in collateral against those things, but From a bank's perspective, it is probably ultimately a way to blend out and get higher returns. From a company's perspective, like, why should one want to think about taking on venture debt? You know, again, you want to extend runway so you can hit milestones, so you can raise the next round or, you know, get to that next important step in the business. It is— it certainly comes with cautions that you want to be aware of.

Yeah. Eric, I'm sure you've got some venture debt horror stories out there, but Do you see venture debt in kind of early-stage startups much?

Yeah. I mean, like the banking partners, especially SVB, they do try to do, and there's others, there's like Hercules comes to mind and others. I think there are quite a few providers. They do try to do it. I think it's an interesting product for them. You know, in general, I discourage it, to be honest. And And I think you guys are in a very specific situation. There are other companies doing hard tech, which are more capital intensive, where it makes more sense and you're kind of trying to get there. In general, for a typical software startup, you know, you would kind of say like, do the hard thing and, you know, take a down round if you have to take a down round and move on and make the cuts that you need to make because you got to operate within that envelope. And so it, but it always comes up. It's always offered high-quality companies with high-quality founders. High-quality ideas with high-quality investors with, you know, high-quality founders. Like they tend to get a lot of offers for this venture debt offering. And it comes up and there are kind of a variety of providers. I think one of the things that Silicon Valley Bank did was just made it really, really easy. And in addition to some of the things that you were saying at the beginning, which is, I mean, people forget this, but like it turns out like opening a bank, if you go to one of the large banks, like just opening a bank account as a brand new business, I'm doing air quotes here, which you cannot see, but opening a bank account as a brand new business is like not the easiest thing to do. And I think one of the things that both First Republic and Silicon Valley Bank have done very well is just being like they understand that workflow, right? And then they understand kind of some of the like typical things that you'd want to do. It's like, okay, you're going to have a payroll provider. Your payroll provider is going to be, you know, whatever Gusto or Rippling or something like that versus, you know, versus ADP. And and like and and so just like. There's just a bunch of like the friction of getting business going that I think they eliminated because they understood it. And I think that was really meaningful.

When— this is a really important point because there was definitely, I think, in a bunch of the noise that was out there after SVB's failure, there was this kind of idea. It's like, just go open a bank account at JPMC. It's like, you just go open a bank account at JPMC. It's actually not that easy. And it is— this is not— I mean, they are used to businesses that kind of grow slowly, that have been established, and that are kind of building this nut over time, not businesses that walk up with a $12 million check and then start whittling it down. It's like, well, that's going the wrong direction. I mean, it ends up— you're exactly right. It is hard to actually open an account. People think it's like, that's really basic. And it's like, not.

And Eric spoke to this, but I mean, opening the account is a Total pain in the ass. But then you get into just the basic operations of the business where you've got vendors to pay, you've got wires to send, you've got—

Totally.

They invested in helping make that stuff easier. You could reach out to someone who would actually go do some legwork to help implement these sorts of things, or at least give you guidance on making sure that you have things well done. And I'm sorry, but like that same email to the B of A person is going unanswered as a startup until you get to a certain point. Now, that's— that maybe hopefully is going to change in the backdrop of the last But I know a lot of founders that are still waiting to hear back from JPMC that did actually get in touch with Wells or B of A or whoever and were like, oh man, I'm going to need a bigger team to go manage my banking relationship.

Yeah.

So this is also a really important point. You're going to be very curious about this too, because ultimately all of this stuff at Oxide, we did not want to hire— we don't want to hire a corporate treasurer at Oxide. We don't want to And like that, Steve, that has all fallen to you. And the reason you've been able to do it is because we've been able to find partners that have helped us out, but then especially because we've got banking partners that are making it easier. And if you've got to, like, if we have to go hire someone for this role, that's a real problem for us.

Yeah. And Eric, I think that's totally, totally right, which is like, you don't— the founders typically in the early days, there is no finance or finance-savvy person. And so making it easy, eliminating that friction, not having to deal with it is hugely advantageous. And we think even just like little simple things that are kind of silly, like what does it take to send a wire? And, you know, it's— that is the kind of thing that is just like trivially easy at an SVB or First Republic and actually is kind of a pain in the ass at some of the larger banks, or can be, if you don't have their attention and they're not spending time on it. And so I think that's there. And by the way, I just wanna put a little bookmark on this, but we should just spend a minute at some point and talk about the venture side of it, which actually—

Yeah.

Was important as well and is a totally different A totally different set of things.

Yeah.

And Eric, just before we do that, I think you were just talking about wires and not to get into the weeds on one point, but wire transfers end up being very important to startups because startups don't typically have lines of credit with their vendor ecosystem. So oftentimes, especially when you are dealing with a supply chain and hardware and you don't have vendors that are like, no problem, you can just pay me net 30, net 45. You know, oftentimes you're having to pay upfront before you can get things. And in the last 2 or 3 years, for us in particular, with the supply chain constraints globally, Yeah. We— you have to act fast and you have to pay upfront and wire transfers end up being a big part of that. And if you snooze, you lose on, you know, TI parts or, you know, some small component that can hold up a big part of our build. And it sounds like a trivial thing that actually can be a very complicating factor if wire transfers are made difficult for you. And that was a big plus.

Well, and it is challenging because you want them to be made easy, but it's also scary when they're super easy because this is the company. You've worked so hard to go raise these funds, and if you're pre-revenue, there is no cash coming in.

So like, it is—

gets very nerve-wracking. So, but Eric, I want to take— when you say the venture side of this, do you mean in terms of the venture firms themselves, in terms of where they banked, or elaborate on that?

Yeah, so I think there's a few things. So the first and foremost thing that we were concerned about, and we are concerned about, is what is the entrepreneurial experience, right? So, and, and, and, you know, for people who don't know, like, when you're working on financing for a company, It's often, you know, in the early days, it may be, it may be, you know, just 2 or 3 people and they're working on financing and the lawyers are going back and forth and, and then you're like, okay, we're gonna close tomorrow. And it's like, oh wait, no, there's something. So no, we're gonna close the next day. And so, and you have this dynamic where it's like the entrepreneurs are ready to go, we want to deliver an amazing experience to them. And so part of that is just also us being able to like close when we need to. And that, relates to like the legal side of it and it relates to the banking side. Like we want to be able to call, you know, 5 minutes before the wire deadline and say, hey, ship this thing and close. And because that delivers the best experience, if there's a bunch of bureaucracy that we have to go through, then that doesn't deliver a good experience to an entrepreneur at the early days of relationship. And so that's something that we care about. There's another piece of the venture side, which also has been untalked about, which is, you know, venture partners at venture firms have capital calls. Like, we pay in, we're LPs as well as GPs. So we're investors in our own funds. And we have— and those capital calls can be substantial in terms of dollar amounts. And in particular for people who are earlier in their career or younger partners who may not have the capital, they used— and one of the things that one of the products that SVB had were these like capital call lines, which are basically lines for venture capitalists themselves or investors themselves to kind of participate in their fund. And then, you know, they basically get paid back as the fund gets paid back. And so, like, but just if you go to, again, if you go to a normal bank and you're like, hey, I want a capital call line, they'll be like, what do you mean you want a capital call line? Are you trying to buy a house or are you trying to buy a car? Right? And—

Right.

It's like, I'm trying to actually fund a startup. Like, okay, we're definitely not doing that then.

Yeah, exactly. And so, like, and how do they, and how do they warrant that? And there's this institutional knowledge that kind of builds up, which is, you know, and I'm sure they don't offer them to everyone and I don't, I don't think any of us use it as a benchmark, but I think this is a kind of a thing that does come up. And so you kind of think of the institutional knowledge around it, which is they'll be like, okay, they have to make it, they have to make a quality, you know, it's a debt, it's a piece of debt, right? And so they have to make a quality judgment on that. And, you know, I think if you said like, okay, there's a new partner at I don't know, Sequoia. Like, I think, like, again, to the typical bank, it doesn't mean anything, but like, you know, to Silicon Valley Bank, I think they would understand, like, oh, you know what, like, chances are we're gonna get paid back.

Yeah, I think this person's probably going places. I think this person is probably good for it.

Yeah. And so I think there's some dynamics there. And even with venture capital firms themselves, you know, the people— so just the mechanics of this. We, a venture capital firm, will raise a fund. Let's just for argument's sake say it's $500 million. But we don't, our LPs, our limited partners who invest money with us, they don't give us that $500 million upfront. It gets called, right? It gets called as you progress. And so basically, okay, we agreed to make a new investment. We put a capital call out to our LPs and then they wire money. And, you know, people, different firms work in different ways. It depends on the fund. You may call it in maybe 5% increments. If it's a really big fund, you might call it in 1% increments. And so, you know, you have a $500 million fund. Let's make the math easy and say you have, you know, 25 LPs each at $20 million. It doesn't really work this way, but to make the math easy. And, you know, if you're calling that in 5% increments, That's a lot of wires. Like, it's a lot of inbound wires and transfers that you're managing that are coming in. And then, you know, and then obviously you're funding companies. And so you make these calls and let's say as an example, okay, we're doing a $10 million round in a company. We have, you know, $8 million of capital that's like sitting in the account, in the fund account. And we're like $2 million short and that $2 million is coming like it's coming tomorrow or the next day or whatever as LPs get their stuff together and they initiate the wires. But, you know, that's again another kind of product that Silicon Valley Bank really understood, which is like, hey, okay, yeah, well, that's a— I forgot what that particular thing is called, but it's like they'll give you that capital call. That's not a capital call line, it's a fund line or something.

And they are basically giving you a loan against the— it's like capital call-based financing.

For like—

exactly.

That's brilliant. Exactly. And so like, these are—

yeah, interesting.

But the, but the, the larger point against the loans is just the mechanics of that thing, which is like, wow, there's a venture capital firm and every whatever month or couple months or quarter, they have like 30, 40 inbound wires of like varying amounts. And then you know, every month or every whatever, depending on the frequency. These days it might be every week. They have an outbound wire to some new company with a new bank account that has $100 in it and is about to have $12 million in it.

Yeah.

And so just like all of those mechanics of those kinds of transfers and that frequency, I think it just gets lost. You know, it's not quite as simple as, Hey, it's like we have a checking account. I wrote you a check and like, now we burn it down. You know, there's, there's a lot of flow, I guess, is, is the core point.

Well, and, and the—

To the familiarity too, right?

That just totally—

that they do this all the time. They're familiar with it. I've had friends who are entrepreneurs who've gone, tried to shop other banks. And as folks have alluded to, just kind of struck out, like not have folks really understand that business. Whereas when I was starting a company, you know, our, our major backer kind of plugged us into his person at SVB and everything was easy. There's also, you know, we didn't want to hire a CFO. There's this whole ecosystem of folks who will do that for you and have their own relationships with SVB and their own familiarity with their tools. And all of these things were easy and let folks focus on the hard part of starting their business.

Absolutely.

And I think, you know, and Eric, I love your emphasis too, and it's so interesting to hear. Of course, I didn't know about the capital call-based financing, but of course it makes a ton of sense. And just for other people that don't necessarily realize, if you haven't started a company, what Eric's talking about, about trying to hit a close when you are closing on financing, it is a high wire act. It just feels, at least from our perspective, I don't know, maybe our experience has been especially, but it's like, because you're trying to get everyone to meet at the same time and you always, I mean, it's just as an entrepreneur, you're always going through your head about like the things that can go wrong. And any— and we have— I feel like we've had lots of things go— we have just seen so many slip-ups that are mechanical. And as an entrepreneur, you're thinking like, my business is hanging in the balance right now. I mean, it is terrifying. And so anything that is going to be in the way of that is going to be a real problem. And I think that understanding, you know, in I think you kind of mentioned in passing, but so folks understand that when a VC firm does a capital call, they've got— there is an entrepreneur waiting to be funded on the other end of that. You're not doing cap— I mean, yeah, right, Eric? I mean, I think that's— it's my understanding anyway that that's when those capital calls are happening. So like any time that we spend kind of dilly-dallying, you've got a company that is actually waiting to close financing. And I think even, you know, even when you are you know, wind at the back and things are going great and, you know, quote unquote, we don't need it. I always love that little lie that entrepreneurs tell one another, like, oh yeah, we raised a bunch of money. It's the only time. Right.

Okay.

But even, even in those situations, that is, it's anxiety-producing and you need— and the mechanics become important. The other thing I would say, and Eric, I'd love to get your take on this, but I think it is, you know, people have their own experience with banking based on their own, you know, my direct deposit and my checking account and so on. Banking gets a lot harder when the dollar figures get larger. So this is not something that's like, well, it was easy for $100,000. Like, there is a difference for a bank between $100,000, $1 million, $10 million, and $100 million. Feels obvious, but it's amazing how many people are like, I don't understand why this is hard for startups because I'm able to go to a bank and open a banking account. It's like, yeah, because the dollar figures are a lot bigger.

Yeah.

And it's when the dollar figures are bigger, like this stuff, like a bunch of stuff that works when you're small doesn't work when you're, when you're big.

Yeah, yeah, that's correct. Yeah, I think that's right. I think it's just different when it's a business. And, you know, I mean, you saw some silly criticisms around, well, it's like, why do they have more than $250,000 in kind of a standard account? And it's like, well, payroll, like, you know, payroll turns out to be for a lot of companies of any reasonable size, More than $299,000, then what was the—

Yeah, $399,000.

Yeah, exactly. I feel like I've never known our exact payroll figures so well.

Yeah, yeah, like it matters. And so you have, um, I, I think it does get complicated that way. I think the other thing that, um, and, and of course, like, you know, there's criticism, oh, they're so stupid, they should use sweeps and like things like that. And it's like, yeah, people use sweeps. Like, it's not Yes, startups have money in sweeps. Startups do those kinds of things. Like, that's not, that's not unheard of. But, but I think there was another thing that, and, and tell me if this is where you don't want to go, but like, I, I, I would just say like, one of the things that did change in the last, I don't know what, I, I guess year-ish, is for a long time it didn't really matter if you used a sweep or you just left it in a checking account because there was no return. On the sweep, like there was no incremental money to be made.

Like 0% or 0.0001%?

Like which would you want? Yeah, exactly. Yeah. And so it's just like, oh, okay. So like it just didn't matter. And obviously that has changed and companies are generating money. There's a set of companies that are generating more interest income than they are revenue.

Those companies would disgust me. I hope there is no company That is generating more in interest income than revenue. That would be sickening. I hope they should be canceled, those companies. They sound like the worst.

Eric, there's a question in chat. Can you explain the sweep funds?

The sweep funds? Yeah, sweep. Well, I can explain it as best I understand it. And let me tell you, when I started reading the fine print on the sweeps very recently. So, you know, a sweep is basically, there's a set of different things, But basically, it takes the excess cash that is in an account and puts it in and basically invests it. A lot of them work overnight. So, it basically sweeps your cash overnight and invests it overnight and returns it in the morning, more or less. And in exchange for doing that, you get a little bit of return that you wouldn't get if you just left it in the account. That's an example of a sweep. The thing that is important here is when money is allocated to sweeps and designated in that way, then the bank isn't, you know, and obviously banks work in large pools of money, but the bank isn't then loaning that money out because that money is being invested, right? And so that money is being used to buy something, a fund of some kind, and You're holding that fund, so that's where that cash is going. And so one of the things that is changing and started to increase pressure here on all banks is people are getting return on some of these funds, whether they're treasuries or corporate bonds. There's there's all kinds of different vehicles, and so they are basically pulling it out, the cash out of checking, which or savings, which banks could previously use to loan out. And they are buying securities of some kind. And when you buy security, it kind of goes to a different place on the bank balance sheet. And so they're— and not again, it gets complicated because some of the sweeps are run by funds, by third-party funds, and some of the sweeps are run by the bank themselves. And like where it goes on the bank balance sheet, there was a lot of confusion in that in the last week, which is like, hey, Is my money at risk because it was on an SVB sweep, or is my money not at risk because it was in a third-party, whatever, Vanguard sweep or whatever it is?

Yeah, Eric. So for us, to make it concrete, just for the listeners, so we had our deposits with SVB, and we had a percent of those that were— oftentimes, the banks will have kind of a blended product where you're getting X return on your money. And we had a percent of it that was on SVB's balance sheet, and then a percentage of it, which was actually with BlackRock under Oxide's name. And that's the money market fund that Eric's alluding to that your money gets swept into, and that has got our name on it. And that is a much more secure end vehicle than just sitting on a bank's balance sheet.

As we discovered. As we discovered, because those funds were going to be effectively made whole. Made whole. Yeah. There was under no scenario where those funds not be made whole.

But those funds are all— 2008.

I was just going to say, I mean, so this is an important thing. It's like people, if you're doing this to keep things absolutely secure, it's like, well, there's not necessarily absolute security here. And you can have a— and we have seen, I've seen now, we have seen several in our lifetime. And I certainly 2000, 2001, and obviously in 2008, where things came unspooled very, very quickly, where the things that you think are actually completely robust, or we came very close to, in March of 2020, to the commercial paper markets shutting down. And that's another one where people rely on the established companies very much rely on those commercial paper markets functioning correctly. And if they don't, All of a sudden, things get real sticky for a lot of folks. And I think that this is mechanically really, really challenging. Anyone saying, just use a sweep, it's like, it's not just use a sweep. You've got to take this stuff apart.

And by the way, sweeps are not FDIC insured. This is a really important point. They're not FDIC insured. And so You know, or whatever. So anyways, yeah, yes, there's, there's real complexity in it. And startups were definitely concentrated at SVB for a bunch of reasons that we've talked about in terms of their understanding of the startup ecosystem needs.

And, you know, I mean, I guess this varies by startup, but I think for most startups, certainly for us, for a, for a capital-intensive startup, like the cash we've raised, we are very, very conservative with it. We want to be maximally conservative with. And so there's kind of this myth that, like, startups themselves were somehow being chancy with their cash. It's like startups do not want to be chancy with their cash. They do not. They want to focus on doing this outlandish thing that they're trying to do. And they, they, they want to make sure that the cash they've raised is the cash that's there. So they are looking for any path that is going to be— now, that said, I know, Steve, you definitely did encounter some other entrepreneurs that were going— that were literally going back and forth with Bitcoin to make payroll.

Yeah. I mean, just through the arc of what was a pretty intense Thursday, Friday, Saturday, Sunday for, I think, all, but certainly those with deposits at SVB, where, you know, as of Thursday night, things were, you know, already SVB Stock had crashed and there was a bunch of questions on what the outcome was going to be. And everyone was saying, oh, they're going to get acquired. And then Friday morning, the FDIC steps in and takes over the bank. Fast forward to Saturday morning, and I'm on the sidelines of one of my kids' basketball games. And of course, all the discussion in the parent groups is what's happened in the banking system just generally. But one dad in particular was asking like, oh, Steve, yeah, where does Oxide bank? Probably not SVB. And it's like, all right, here we go. Another one of these.

Another one of these. I just got off the phone with my mom. I guess I'm going to do this.

Let's do it again. And I said, no, yeah, we do bank with SVB. He's like, oh gosh, that's got to be awful for you. Like, thanks. That's also helpful. And he's like, yeah, I would never put our company's money in the traditional banking system. And I'm like, oh, the traditional banking system.

You're not a trad banker?

So tell me, payroll. Yeah. Tell, tell, so what do you guys do? And he's, you know, he's already, you can tell he's given this speech a bunch in the prior 48 hours. And he informed that they keep all of their deposits in crypto and that they, and I was like, okay, that's pretty, I mean, that's bold. That's volatile.

How's that working out? Right.

Well, so, and he's, uh, and he's— and I was like, what do you do for payroll? Because that's an area I don't understand that well in terms of how you would then make— do payroll out of crypto. And he's like, well, no, I mean, we go through a bank, so we will convert from the stablecoin to USD, and then we will pay payroll out of that.

Stablecoin do you use? I asked.

It turns out the stablecoin that he uses has $3.2 billion at SVB, right?

So I think you're struggling to make payroll on Monday too, pal.

He's like, oh, it's just barely off the peg, it's going to recover. Like, okay, back to basketball.

Uh, yeah, and Eric, I don't know if you've got other, uh, but it's when startups reach out to you for their advice on this stuff, I mean, because, and especially now, I mean, how are you counseling startups to kind of change their thinking? And actually, let me, I'll make my question a little bit more specific because You know, I mentioned at the top, but we were banking with SVB exclusively by covenant. So we have— we do— we've got venture debt with SVB. That venture debt was very important for us. It was— it allowed us to extend our runway at an important time and allowed us to— very grateful for it. It was absolutely the right decision for us. But that actually— in fact, they also wanted our credit cards to be at SVB, right? I think you negotiated that part.

Mm-hmm.

Yeah.

And that was a pretty easy negotiation when I asked them if they use the SVB credit cards because it is a— that's not a good experience. If we're talking about like things you're good at, like do what you're, you know, stick, stick with what you're good at, right?

The—

there are companies like Ramp and Brax and a bunch of others that, again, not to go into— we won't go delve into this, but there's a bunch of things that you want when you have employees, a number of employees that are, that are needing charge accounts to operate. And companies like Ramp get it and they make it very, very easy. And there's a bunch of things you can go through as to why that is the case. And by the way, I will— I do want to make a plug for Ramp because, man, when you, when you're in a situation, I mean, the very, very first thing that every single founder was thinking about is like making payroll.

Yep.

And, and that was first and foremost. But then there's the little things that crop up almost immediately, which is on Friday when there was the very real chance that SVB depositors were not going to have access to their funds for some period of time, companies like Ramp or any other credit, any other card company that gives you a line of credit that you charge against each month, they have integrations via like Plaid or something else, and they do pings every single day and they know when you have an active account on the other end of the line or not. And when you pinged SVB on Friday, you did not have an active account on the other end of the line. And so, I mean, I don't want to say it would have been reasonable, but I would not have been stunned if, you know, these companies shut us off. Got companies off or at least lowered credit lines for companies. And all of a sudden, we had folks traveling that weekend that were going to meet with a partner of ours, a manufacturing logistics partner, and they very well could have had their cards not go through.

Right.

And then what are you doing? You're asking your employees to put it on their personal credit cards over the weekend. Oh, you'll get it back when SBB is open. So anyway, I just want to say, Ramp not only did not shut off their customers' accounts, they didn't take down their credit lines. They kept the credit lines where they were, which gave these companies a bunch of flexibility while they're trying to figure out things like payroll.

Yeah.

So that was, that was great to see.

And Eric, I'm sure you spent the weekend with your portfolio companies figuring out where they were and helping them arrange for— because I feel that there was a lot, and we certainly, we felt there was heroics on the part of our investors making sure that we could make payroll. And it was— I feel like people did not see this. What they saw were kind of like the all-caps, like, tweets that were out there. And what they didn't see were the VCs who were behind the scenes stepping up and saying, hey, like, I— yeah, I'm going to make a wire commitment, which is— I mean, this is not light. And I mean, I'm sure you were— I'm sure it's a very busy weekend for you in that regard.

Yeah, I think, you know, it was. And obviously, and thankfully, in a way, it was not necessary. I think there were— I know a number of people, venture capitalists, and And I think some of the founders who had had prior success, who personally fronted money to make payroll, there were firms who had abilities to, you know, accounts elsewhere that were able to do that. And there are a bunch of cases like that. So I think people were really, you know, it's one of the things that makes the ecosystem very special, actually, is people are trying to help each other and sort it out and work through it. And And you know you have you have a sense that like things will come back around.

Yeah.

And and so I think that's that's really special in terms of how I'm advising companies. You know I over the course of Thursday my perspective changed a bit where you know I was trying to reduce the panic and. But we're fiduciaries at the end of the day as well. So my advice ended up being have 6 months somewhere else, 6 months of runway somewhere else.

Hmm.

And so if you were at SVB, I was like, have 6 months of runway somewhere else so that you have continued to operate. But beyond that, don't contribute to the panic. That was my— that would contribute to the run. And, and that was kind of my my line. And I got, you know, I think luckily not everybody— people are in different situations and not everyone could open an account fast enough if they didn't have a second account somewhere, or even to link accounts is not like trivially easy. And, you know, wires were getting clogged and things like that. But at least 2 or 3 of the companies I work on, I guess 3, were able to execute some version of that strategy very quickly. And, you know, and so like that was kind of the advice I gave. My new perspective, at least for the time being right now, because I do think it's not— I really don't think it's limited to SVB, although they're the first. I think there will continue to be pressure on other banks as we're seeing. And I do think the risk is quite real. And I'm kind of astonished actually people don't play it. It just makes sense. People are finding return elsewhere. They're going to take money out. And I mean, you've, you've kind of seen that, is to have a large banking partner, you know, one of the SIBs, the strategically important banks, and have a regional partner who's very high service and have an accountant each, or have accounts at each, have them pre-linked and fluid so that you're set to go in terms of the linkages on them. And can move very fast. That's kind of my near-term advice, which I think gives you the best of both worlds where you have a primary, you have a partner who cares about you, who understands your business, et cetera, and what you're trying to do, but you also have a very safe place to keep money. And I just think startups are risky enough, like collapse of the banking system shouldn't be an additional risk. And so that's how I've been thinking about it for the time being.

Yeah.

And of course, as a moderate and compromised position, I'm sure you managed to just piss everybody off with that.

Oh yeah. I'm sorry. I tried to do that. Yeah. I tried to do that.

But yeah, that's interesting. And certainly, so when we negotiated our venture debt exit, we were able to get credit cards exempted, but basically everything else had to bank with SVB.

All deposits, yeah, had to be with Do you think that those provisions—

I mean, we are certainly in future venture debt partners, that provision was basically presented to us as non-negotiable. Do you think that that provision is going to have to be negotiable for venture debt to live as an instrument?

I think people are going to have to be a little more flexible about it in terms of like, we want to be your primary banking relationship, Um, but not your, you know, exclusive or whatever. Like, there's got to be some— like, there's going to have to be some flexibility, um, in that. Um, so that'd be my guess is, is where it lives, is, is it softens a bit because I just don't think anybody reasonable, any reasonable board would say like, hey, go for it, you know.

Right.

It's just like, that's like, that just seems like imprudent in the, in the current environment.

And that level of risk is certainly very new. I mean, as recently as a week ago Monday, if you'd been like, hey, I'm going to spend a bunch of time opening up a bunch of bank accounts because I think SVB is going to fail, I mean, a board would have been like, what? Excuse me? Don't you have a business to focus on? Do you not have enough to do? I mean, it's like, sorry.

Totally.

And so I think this is certainly a new problem for people. I do think also One of the challenges with the systemically important banks is they just don't get the startup model because it is this inverted model where you take this huge amount of cash when you are not established at all. And it is not a model that the traditional banking system is— it just doesn't know how to deal with it. And it's just interesting to hear that it doesn't know how to deal with it on the venture side either. We need a bunch of things out of the mechanics That we just are— it's going to be hard to get that out of the— and I'm hoping, we're hoping that SVB— it's, I guess, are they now the First National Bank of Santa Clara? What are they calling themselves?

And also like Bridge Bank, like they called themselves.

It's the Bridge. And it's like, there's another Bridge Bank out there.

And then they were like SVB-NA. So I think they're still trying to figure that out. They filed for bankruptcy this morning. And as another step, and their path forward, I mean, from speaking with them, they certainly have the confidence of ongoing operations. They've alluded to actually more deposits coming in than things going out, because there may be the sentiment out there that it's one of the safest places to bank right now with the current structure. But yeah, we're like Like many, I'm sure, Eric, like the companies you're working with, we're trying to figure out what the right cash management strategy is that is not going to be single-sourced in the limit.

Eric, could you speak to the importance of relationship here? Because I know for us, speaking personally, like the relationship we had with SVB, and not from like a, you know, from the perspective of like concert tickets for my kids and draining a sushi bar, but it was the fact that the folks that we met in 2020 when we started talking to them had already been at SVB for 10 years and are still the entire same team.

And they would be there, they would've and probably hopefully will be there in the future. But I think that you could tell that there's a lot to be said for a team that's investing in getting to know your business and what you need.

I think that's right. I think that's exactly right. And we'll see On the venture side too, you know, some of the big banks are saying the right things. You know, it remains to be seen. We have to see it. We have to see it and in order to know. And, you know, on the venture side, I mean, again, people just don't realize this, but like in a firm, there are a whole bunch of different funds and those funds, they're just different vehicles. And so it's just, it's a huge, it's actually quite a large, even for a small firm like ourselves, it's a relatively large number of accounts. And that all have to be replicated in different places and things. And so, you know, like, we'll see, we'll see if they can, they can, if they deliver. And I think people want the business for sure, because, you know, while most startups don't work, obviously we have our fair share that do work and And turn into really big businesses. And I think people like the banks want that business. And so are they going to put the effort into learning it? We'll find out. And what becomes of SVB as a partner? I don't know. I'm hopeful that SVB and First Republic in some form continue, but it remains to be seen.

Well, yeah. And I think it also should be said about the way they handled it, In terms of, like, in the trenches, boots on ground, the way SVB handled this. I mean, they were— Steve, I couldn't believe the number of conversations you were having with them on Thursday and Friday. I'm like, they're still picking up the phone?

Like, on Saturday.

On Saturday.

It's like we're texting back and forth on Saturday, and these are people who have no idea if they still have a job.

Totally.

They have some sort of an offer from the FDIC of continued employment for 45 days with no guarantees thereafter. And to your point, I mean, not only picking up the phone, like following up and saying, hey, here's what I know. And obviously, we were going through a roller coaster over these days because Thursday night they're going to get bought. Friday morning, FDIC comes in and good news, you've got maybe access to $250,000. Then rumors of— well, but I mean, pretty trusted sources that were saying they've already started selling off assets of the bank.

Right.

And what any company is trying to figure out is like, when will I have what access to my cash? And the feedback was like, well, you're going to get some sort of a— you're going to get maybe 30%, maybe 40% of your deposits that'll be available within a couple of weeks, no longer than a month. And then you're going to get upwards to, on a lower end, 90% of your total deposits over the next 18 months if this bank ends up getting dissolved and Assets are sold. And just, you know, of course, what you're also trying to deal with is all the employees that are like, are we going to get paid? I'm getting questions from friends and family, you know, Oxide, what's next? And having someone, you know, the hardest thing would have been if SVB was just phones down.

Totally.

And you did an amazing job. Amazing job.

Yeah, it did. Amazing.

The people The workers on, you know, the employees and the workers there at SVB and First Republic, and I think many of the other banks maybe as well, but obviously SVB was the heart of it. They did an amazing job across the board. And obviously, I'm not talking about the management that made the risk decisions that they made.

Right.

But the folks that were— and these are people that are, that again, they don't know their own futures. They've got Their own net worth has certainly taken a hit. When we talk about equity holders being— taking a bath, that includes plenty of employees for sure.

100%. 100%.

And for those people who are in that to realize that what I need to do right now is focus on these of my customers that need to make payroll, it speaks highly of them. And that is— it honestly is emblematic of what we need as startups out of this sector. I also think that like The other thing that I just want to just to get out there is that I know, you know, people paint startups with kind of a single brush. And there are— and maybe, maybe we have done a disservice by not like actively muzzling some people that are giving the rest of us a bad name. But there are startups, there are startups out there, emphatically, there are startups out there that are solving hard and important problems. And Eric, I would, from my perspective, the ones that are most likely to need this kind of relationship are the ones solving the hardest problems and the biggest problems. I mean, if you've got a company that's capital intensive, that's solving a hard, like, those are the ones that actually, and I think we all want, we want to encourage those societally. And, you know, so we, you know, we're not all Theranos, actually.

Yeah, totally. Oh yeah, totally. Yeah, we're not all Theranos, and, and there are definitely, um, there will be, you know, Theranos won't be the last fraud, um, and there'll be more. Um, and I, and I also think, you know, to be honest, like, it's not always clear which problems are really, are, are actually really important, or which solutions are going to end up being really important and which ones aren't. And I think that's part of the adventure of, of startups. And so it's good to have innovation. We want this part of the ecosystem and we want lots of companies and lots of people pursuing ideas and pursuing dreams. We, you know, it actually matters, like smart people taking on a big idea and putting everything into it. It's not always going to work. It's often not going to work, and that's okay. And I think that's one of the amazing things about Silicon Valley is like, that's okay. And there will be some runaway successes and the talent will compound to the runaway successes, which is also okay and part of the process. And so I'm like, I'm very bullish and optimistic on the ecosystem overall. This is— it's been a tumultuous week, but I think it's a lot— there's a lot of goodness and a lot of Hopefully better risk management and other things will come out of it. But overall, I do believe the system is quite resilient. So I'm optimistic.

Totally. And I would just encourage folks to look for some of the— because again, in my experience, the best ones out there, the best startups, the best VCs are quietly going about making sure that they made payroll. They were— they're really— they're not— they are. So it is tempting to focus on those loudest voices, and you really shouldn't. You really need to go— because there's— and part of the reason I feel that, like, that companies like Ramp and Gusto also did a terrific job. And, you know, part of the reason these startups— and, Eric, you mentioned it earlier— of startups helping other startups, because we've all collectively been there. And I think that it is something that is really special in this ecosystem. It's an important part societally. And I assure you that we are— many of us are very societally engaged and are very cognizant of the role that we play. And we are in this because we are trying to improve the world that we live in. So banking is a really— it's an important and mechanic, if mechanical, but a very, very important part of it.

Totally.

Eric, thank you very much for joining us on this. I really, really appreciate it. For those who are unfamiliar with you, and I don't know if you recommend this on your own behalf, but if folks are unfamiliar with Benchmark or unfamiliar with you personally, one-stop shopping is the Acquired podcast. I don't know how that was received within the firm, Eric, but I thought that was a In particular, you all at Benchmark let the Acquired podcast sit in on one of your kind of your famous dinners, and it was just a tremendous listen. So it's a great way to get to know the firm. Hopefully that was well received within the firm as well.

Yeah, we try to do one marketing thing every 5 to 8 years. So that was our—

Whether you need it or not.

Yeah, that was our one. And so I'm You know, I'm glad it— I'm glad you liked it. It was— like it or hate it, it was very authentic.

Well, and it was awesome, Eric.

It was great. And for folks, I highly recommend it. It's like a 2-hour episode. Definitely recommend it. And before you do that, listen to the 4-hour episode just extolling the virtues of benchmarks. So both, you know, that's a 6-hour block, but set it aside.

It was excellent.

Nobody should spend that much time, but yes.

Do it at 1.5 speed. Trim it down to 4 hours.

I thought it was terrific. And, you know, our experience, it definitely fit with our experience. And, you know, again, you've been, you're one of the great ones out there and really appreciate your perspective on this. And, you know, I think that people should, learn more about your perspective. And I think, know that other VCs look to you as a model, both you personally and the firm. And that's good for ball, as they say, it's good for the industry. So thank you very much for leading out there.

Well, thank you guys. And thank you for having me. I really appreciate it. Hopefully this— we won't have to do one of these next week. And it'll be a A quiet, normal week, uh, building, making payroll, and, uh, and having power and internet for the entire week.

Amen. All right, exactly.

Living in unprecedented times, it'd be great.

All right, guys, thank you so much.

Thanks, Eric.

Take care.

Thanks, everyone.