Silicon Valley investors and founders express shock, describe struggles to get money out of SVB
Nikolas Kokovlis | Nurphoto | Getty Images
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 crises.
Numerous venture investors and technology executives expressed shock to CNBC, some comparing SVB’s current debacle to the Lehman Brothers, which filed for bankruptcy in 2008. Many of the investors and execs requested anonymity 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 the fact for SVB to announce 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 any 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 is 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. “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 noted that 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 executive’s mouth, who said that 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 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.
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.”
Microsoft CEO Satya Nadella speaks during the Microsoft Build conference at Microsoft headquarters in Redmond, Washington, on May 21, 2024.
Jason Redmond | AFP | Getty Images
A half-century ago, childhood friends Bill Gates and Paul Allen started Microsoft from a strip mall in Albuquerque, New Mexico. Five decades and almost $3 trillion later, the company celebrates its 50th birthday on Friday from its sprawling campus in Redmond, Washington.
Now the second most valuable publicly traded company in the world, Microsoft has only had three CEOs in its history, and all of them are in attendance for the monumental event. One is current CEO Satya Nadella. The other two are Gates and Steve Ballmer, both among the 11 richest people in the world due to their Microsoft fortunes.
While Microsoft has mostly been on the ascent of late, with Nadella turning the company into a major power player in cloud computing and artificial intelligence, the birthday party lands at an awkward moment.
The company’s stock price has dropped for four consecutive months for the first time since 2009 and just suffered its steepest quarterly drop in three years. That was all before President Donald Trump’s announcement this week of sweeping tariffs, which sent the Nasdaq tumbling on Thursday and Microsoft down another 2.4%.
Cloud computing has been Microsoft’s main source of new revenue since Nadella took over from Ballmer as CEO in 2014. But the Azure cloud reported disappointing revenue in the latest quarter, a miss that finance chief Amy Hood attributed in January to power and space shortages and a sales posture that focused too much on AI. Hood said revenue growth in the current quarter will fall to 10% from 17% a year earlier
Nadella said management is refining sales incentives to maximize revenue from traditional workloads, while positioning the company to benefit from the ongoing AI boom.
“You would rather win the new than just protect the past,” Nadella told analysts on a conference call.
The past remains healthy. Microsoft still generates around one-fifth of its roughly $262 billion in annual revenue from productivity software, mostly from commercial clients. Windows makes up around 10% of sales.
Meanwhile, the company has used its massive cash pile to orchestrate its three largest acquisitions on record in a little over eight years, snapping up LinkedIn in late 2016, Nuance Communications in 2022 and Activision Blizzard in 2023, for a combined $121 billion.
“Microsoft has figured out how to stay ahead of the curve, and 50 years later, this is a company that can still be on the forefront of technology innovation,” said Soma Somasegar, a former Microsoft executive who now invests in startups at venture firm Madrona. “That’s a commendable place for the company to be in.”
When Somasegar gave up his corporate vice president position at Microsoft in 2015, the company was fresh off a $7.6 billion write-down from Ballmer’s ill-timed purchase of Nokia’s devices and services business.
Microsoft is now in a historic phase of investment. The company has built a $13.8 billion stake in OpenAI and last year spent almost $76 billion on capital expenditures and finance leases, up 83% from a year prior, partly to enable the use of AI models in the Azure cloud. In January, Nadella said Microsoft has $13 billion in annualized AI revenue, more even than OpenAI, which just closed a financing round valuing the company at $300 billion.
Microsoft’s spending spree has constrained free cash flow growth. Guggenheim analysts wrote in a note after the company’s earnings report in January, “You just have to believe in the future.”
Of the 35 Microsoft analysts tracked by FactSet, 32 recommend buying the stock, which has appreciated tenfold since Nadella became CEO. Azure has become a fearsome threat to Amazon Web Services, which pioneered the cloud market in the 2000s, and startups as well as enterprises are flocking to its cloud technology.
Winston Weinberg, CEO of legal AI startup Harvey, uses OpenAI models through Azure. Weinberg lauded Nadella’s focus on customers of all sizes.
“Satya has literally responded to emails within 15 minutes of us having a technical problem, and he’ll route it to the right person,” Weinberg said.
Still, technology is moving at an increasingly rapid pace and Microsoft’s ability to stay on top is far from guaranteed. Industry experts highlighted four key issues the company has to address as it pushes into its next half-century.
Microsoft didn’t respond to a request for comment.
Regulation
There’s some optimism that the Trump administration and a new head of the Federal Trade Commission will open up the door to the kinds of deal-making that proved very challenging during Joe Biden’s presidency, when Lina Khan headed the FTC.
But regulatory uncertainty remains.
It’s not a new risk for Microsoft. In 1995, the company paid a $46 million breakup fee to tax software maker Intuit after the Justice Department filed suit to block the proposed deal. Years later, the DOJ got Microsoft to revamp some of its practices after a landmark antitrust case.
Microsoft pushed through its largest acquisition ever, the $75 billion purchase of video game publisher Activision, during Biden’s term. But only after a protracted legal battle with the FTC.
At the very end of Biden’s time in office, the FTC opened an antitrust investigation on Microsoft. That probe is ongoing, Bloomberg reported in March.
Nadella has cultivated a relationship with Trump. In January, the two reportedly met for lunch at Trump’s Mar-a-Lago resort in Florida, alongside Tesla CEO Elon Musk.
President Donald Trump shakes hands with Microsoft CEO Satya Nadella during an American Technology Council roundtable at the White House in Washington on June 19, 2017.
Nicholas Kamm | AFP | Getty Images
The U.S. isn’t the only concern. The U.K.’s Competition and Markets Authority said in January that an independent inquiry found that “Microsoft is using its strong position in software to make it harder for AWS and Google to compete effectively for cloud customers that wish to use Microsoft software on the cloud.”
Microsoft last year committed to unbundling Teams from Microsoft 365 productivity software subscriptions globally to address concerns from the European Union’s executive arm, the European Commission.
Noncore markets
Fairly early in Microsoft’s history the company became the world’s largest software maker. And in cloud, Microsoft is the biggest challenger to AWS. Most of the company’s revenue comes from corporations, schools and governments.
But Microsoft is in other markets where its position is weaker. Those include video games, laptops and search advertising.
Mary Jo Foley, editor in chief at advisory group Directions on Microsoft, said the company may be better off focusing on what it does best, rather than continuing to offer Xbox consoles and Surface tablets.
“Microsoft is not good at anything in the consumer space (with the possible exception of gaming),” wrote Foley, who has covered the company on and off since 1984. “You’re wasting time and money on trying to figure it out. Microsoft is an enterprise company — and that is more than OK.”
It’s unlikely Microsoft will back away from games, particularly after the Activision deal. Nearly $12 billion of Microsoft’s $69.6 billion in fourth-quarter revenue came from gaming, search and news advertising, and consumer subscriptions to the Microsoft 365 productivity bundle. That doesn’t include sales of devices, Windows licenses or advertising on LinkedIn.
“As a company, Microsoft’s all-in on gaming,” Nadella said in 2021 in an appearance alongside gaming unit head Phil Spencer. “We believe we can play a leading role in democratizing gaming and defining that future of interactive entertainment, quite frankly, at scale.”
AI pressure
Microsoft has an unquestionably strong position in AI today, thanks in no small part to its early alliance with OpenAI. Microsoft has added the startup’s AI models to Windows, Excel, Bing and other products.
The breakout has been GitHub Copilot, which generates source code and answers developers’ questions. GitHub reached $2 billion in annualized revenue last year, with Copilot accounting for more than 40% of sales growth for the business. Microsoft bought GitHub in 2018 for $7.5 billion.
Microsoft CEO Satya Nadella, right, speaks as OpenAI CEO Sam Altman looks on during the OpenAI DevDay event in San Francisco on Nov. 6, 2023.
Justin Sullivan | Getty Images
But speedy deployment in AI can be worrisome.
The company is “not providing the underpinnings needed to deploy AI properly, in terms of security and governance — all because they care more about being ‘first,'” Foley wrote. Microsoft also hasn’t been great at helping customers understand the return on investment, she wrote.
AI-ready Copilot+ PCs, which Microsoft introduced last year, aren’t gaining much traction. The company had to delay the release of the Recall search feature to prevent data breaches. And the Copilot assistant subscription, at $30 a month for customers of the Microsoft 365 productivity suite, hasn’t become pervasive in the business world.
“Copilot was really their chance to take the lead,” said Jason Wong, an analyst at technology industry researcher Gartner. “But increasingly, what it’s seeming like is Copilot is just an add-on and not like a net-new thing to drive AI.”
Innovation
At 50, the biggest question facing Microsoft is whether it can still build impressive technology on its own. Products like the Surface and HoloLens augmented reality headset generated buzz, but they hit the market years ago.
Teams was a novel addition to its software bundle, though the app’s success came during the Covid pandemic after the explosive growth in products like Zoom and Slack, which Salesforce acquired. And Microsoft is still researching quantum computing.
In AI, Microsoft’s best bet so far was its investment in OpenAI. Somasegar said Microsoft is in prime position to be a big player in the market.
“To me, it’s been 2½ years since ChatGPT showed up, and we are not even at the Uber and Airbnb moment,” Somasegar said. “There is a tremendous amount of value creation that needs to happen in AI. Microsoft as much as everybody else is thinking, ‘What does that mean? How do we get there?'”
Technology
Nvidia positioned to weather Trump tariffs, chip demand ‘off the charts,’ says Altimeter’s Gerstner
Altimeter Capital CEO Brad Gerstner said Thursday that he’s moving out of the “bomb shelter” with Nvidia and into a position of safety, expecting that the chipmaker is positioned to withstand President Donald Trump’s widespread tariffs.
“The growth and the demand for GPUs is off the charts,” he told CNBC’s “Fast Money Halftime Report,” referring to Nvidia’s graphics processing units that are powering the artificial intelligence boom. He said investors just need to listen to commentary from OpenAI, Google and Elon Musk.
President Trump announced an expansive and aggressive “reciprocal tariff” policy in a ceremony at the White House on Wednesday. The plan established a 10% baseline tariff, though many countries like China, Vietnam and Taiwan are subject to steeper rates. The announcement sent stocks tumbling on Thursday, with the tech-heavy Nasdaq down more than 5%, headed for its worst day since 2022.
The big reason Nvidia may be better positioned to withstand Trump’s tariff hikes is because semiconductors are on the list of exceptions, which Gerstner called a “wise exception” due to the importance of AI.
Nvidia’s business has exploded since the release of OpenAI’s ChatGPT in 2022, and annual revenue has more than doubled in each of the past two fiscal years. After a massive rally, Nvidia’s stock price has dropped by more than 20% this year and was down almost 7% on Thursday.
Gerstner is concerned about the potential of a recession due to the tariffs, but is relatively bullish on Nvidia, and said the “negative impact from tariffs will be much less than in other areas.”
He said it’s key for the U.S. to stay competitive in AI. And while the company’s chips are designed domestically, they’re manufactured in Taiwan “because they can’t be fabricated in the U.S.” Higher tariffs would punish companies like Meta and Microsoft, he said.
“We’re in a global race in AI,” Gerstner said. “We can’t hamper our ability to win that race.”
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