Sarah Kunst, Founder and General Partner, Cleo Capital
Vanessa Pham, Co-founder and CEO, Omsom
Dayna Quanbeck, Chief Operating Officer and CFO, Rothy’s
Moderator: Polina Pompliano, Founder, The Profile; Deputy Director, Live Events, FORTUNE

MPW Next Gen 2023 - The Svb Fallout 

Conferences

Sarah Kunst, Founder and General Partner, Cleo Capital
Vanessa Pham, Co-founder and CEO, Omsom
Dayna Quanbeck, Chief Operating Officer and CFO, Rothy’s

Friday, March 10th, 2023 will be a day that many in the tech industry will never forget. Silicon Valley Bank, one of the most prominent lenders for startups collapsed that day when it happened. Silicon Valley Bank was the second largest bank in US history to fail. And less than two months later on May 1st S V B's demise was eclipsed by that of First Republic Bank which is now the second largest bank failure after Washington Mutual take that in three of the four largest bank collapses in history have taken place in the last two months. This has left founders with many fears and concerns as they navigate the future of capital investing and the diversification of company funds. Our next panelists will share their experiences as they have navigated the last two months. Sarah Kunst is the managing director at Cleo Capital, an early stage venture capital fund that invests in pre seed and seed stage tech companies. Vanessa Pham is the co founder and CEO of Amum, an Asian soft starter kits company that was banking with Silicon Valley Bank during the crisis. And Dana Klom back a former banker who weathered the 20 the 2008 financial crisis and is now Chief Financial Officer at Roy's, the washable and sustainable shoe company. They will be interviewed by fortunes deputy editorial director and founder of the profile Polina Pompano. Hi, everyone. Uh Welcome. So I want to start by quickly going to each of you and asking if you had money locked into Silicon Valley Bank and what your first reaction was when you heard the news that Thursday morning. Um Yeah, so the funny thing is it was like sort of schrodinger's money because we used a sweep account. And so technically, it was all with Bny Melo except you could only get to it through SCB and SCB was like hiding under the desk because they didn't want anybody to take money out. And so I'm telling my LP S like, technically, unless B N Y Mellon goes down, we're fine. And meanwhile, I'm like laying on my kitchen floor thinking the world is over. So there's a little bit of both. Wow. Yes, we had all of our funds with S V V and, you know, as a woman of color run brand, I definitely felt, you know, who's gonna, who's gonna have our back during this and immediately, you know, how am I gonna make payroll on Monday was the biggest priority you had all of your money with all of our funds? Yeah, so I had diversified cash parked at SVB and that was a heartbreaking moment because you think you're doing the right thing by diversifying and parking cash to keep it safe. And I was at my daughter's preschool with lots of other venture, people, everybody on their phones saying, oh, my gosh, can you get to a branch? Can you get a cashier's check for $40 million? So, you know, I think it was a little bit different. My experience is a little different from Vanessa's in that I didn't have to, you know, worry about payroll. But um, you know, that nest egg thinking that that was at risk was disheartening. Yeah. And Vanessa given that all of your funding was locked into this account. What was the very first thing that you did when you found out it was in there? Yeah. So the first thing we did was talk to our investors and get their perspective and we heard and what was their perspective? Everything under the sun, depending on who you spoke to. And that just really spoke to the uncertainty of the situation is that, you know, folks whose full time jobs are really focusing on getting capital in the hands of the companies that they're supporting, didn't really know how to navigate it either. Um And so we had to take in a lot of opinions and ultimately decide what was best for us. And so we opened a new bank account, multiple new bank accounts as soon as we could to try to get the money out, but you essentially could not get it out until that next Monday, uh, until we could not get it out. So we, we opened a new bank account, we initiated a wire and then we found out on that Friday that the money did not make it out in time. And so over the course of the weekend, that's when we were really scrambling to figure out. Ok, how do we make payroll? How do we, you know, continue to invest in inventory? We're about to launch a whole new product line. How do we make sure that comes to life when the, you know, investment in that inventory is happening Monday, Tuesday, Wednesday this week. And, and practically speaking, because a lot of the people here may be founders or ceos, how did you communicate that to the employees? How did you say, hey, by the way, I don't know if I can make payroll, I mean, I can speak to that. So um the first thing I did was email my investors with kind of this is our action plan. The second thing I did was email our team and I basically let them know that with the money, we would be having come in from our recent sales that is going to go straight to their payroll. And so we would actually be making payroll, that's our first priority. And from there, we don't really know what's gonna happen. But like on Monday, you will see your paycheck and that was just very important to us. Clear communication. Sarah is an investor. There was so much confusion. I mean, I saw it with my founder friends and VC friends. Like, how did you? Because there was, there were two parties right? There was like, take all your money out, send it to us like we'll figure it out. And then there was the other camp that was like, leave it in. They were trying to quell the panic. How did you advise your founders? So, you know, when I started to hear, rumblings of sort of, you know, SCB had never been a bank that was on par with AJ or, you know, a huge bank. They were a small regional bank and that was fun if they were sponsoring your party. But you also kind of knew they were a small regional bank. And so when I started to hear rumblings that week, you know, I started with looking at one interesting thing different for C P G type companies, but for most startups is they don't actually have that much money at the precede, right? So you raise a million bucks, you immediately start paying out your lawyer, your payroll everything, 250 Ks, you know, BC insurance insured. So at any like kind of random moment you have, you know, call it probably like less than 500 K, maybe even a quarter million. So for those really early age companies, you know, ping them and most of them were like, some of them didn't use FCB, the ones that did, there wasn't a huge amount of risk. And so, you know, some of them were using sweep accounts, but very few people were using sweep accounts or money market accounts just given the situation with the interest rates where there had been very little yield to get. And so, you know, there was a range of things, the bigger companies that was sort of the scarier piece for them because a lot of them had, I mean, I think was it Roku that had like $300 million just sitting in an SUV bank account? Like not earning any interest, not at all protected and like via to that CFO but like Yike. Right. So like there was, there were companies that had a lot more exposure and even my companies that had, you know, mil millions and millions. And so, you know, with those companies, when I asked them, hey, how are you doing? Their immediate response was, oh, we've already started to move our money, our big investors want us to move it. You know, we are moving and, and you know, you don't, you owe loyalty to your team, you owe loyalty to your investors to your customers. You don't owe loyalty to a bank. That's only job is to keep your money safe when it turns out that like they were a little bit too busy vacation in Hawaii to keep your money safe. Dana. Um, as the CFO of what were the short term fires you were trying to put out? And how did you kind of try to maintain a sense of calm with the executives, with the employees? Well, it was mostly with my board. Right, because we had done a, a large primary round last year. And, um, how large was it? It was a $200 million primary round. And so, um, I think I'm in a little bit of a different situation from somebody that's very early stage and maybe had, you know, six months of runway. So I had, um, you know, I think for us it was like being patient knowing you had done the right thing. You had done nothing wrong, multiple calls with my board, you know, accounts were frozen, you couldn't move it. Um The irony is that we also had, uh, safe cash parked at First Republic. Uh, so, uh, what you should take away is that I, I picked the wrong safe bank. Um, but we had our concentration account at JP Morgan. And, um, you know, I, I, I think that Friday and Saturday, it was so, you know, there's so much anxiety because nobody knew. Is this done? Are we, are we done? Are we getting it back? We've worked so hard to raise the round, you know, and, and to lose it this way, I was like, at least let me blow it on, you know, whatever, uh, something else. Uh, this is not the way you want to lose money. But, you know, I think everybody sort of rallied around. There was a sense of calm, I think in Silicon Valley, or at least in San Francisco as people waited it out until we got the news on Sunday night. There was nothing else really you could do. Yeah. Huge lesson. and like, what can you control? I'm curious, are there any of you here who had money locked in E V? Oh, wow! Ok. Quite a few. Um So if you have any questions for our panel, please raise your hand and we'll get a mic to you and I'll come back to you uh in a minute. So uh Vanessa, you went a little viral with your post. Vanessa posted something on Instagram that was very, very frank. Um She showed screenshots of slack messages and text messages with her sister where she was like, what the is going on. Um But to me when I was looking on Twitter, there was a lot of um kind of villain organization of some of the founders. It was people almost cheering for the demise of some of these people. Like you should lose your money. You have so much money and it was like the the lack of understanding of what a start up or a venture backed company is. How, what is the reaction that you saw when you went viral with that. Yeah. Yeah. So for a little bit of context, um my sister and I are co founders, we run an Asian food brand and for years, we launched three years ago, we've been building a deeply intentional community where vulnerability Candor is at the heart of the brand. And so when this was all going on, like in the midst of it Friday night, we realized we weren't going to get the money. It didn't hit the new bank account. Saturday morning, we woke up and we said, you know what, we're, we're paying our employees, we need to get as much cash as possible. Let's just tell our community that we've built, we have over 150,000 people that are supporting us. Let's just tell them going on. Someone advised you against that, right? Yeah, we had multiple folks just saying like, hey, you don't know what's happening. Like, are you, do you want your company to be seen in this light? And ultimately, ultimately, we decided, like leaning into community is core to our values and is the only place we can really look to in a time of complete uncertainty and existential threat frankly. So we penned an open letter to our community about the collapse and what was going on and what we were concerned about what we were feeling. Um And we shared that on Saturday in the middle of the weekend and yeah, that post was just unbelievable in terms of the response it went viral, had over half a billion impressions. Um folks from all over were rearing it and I read that thousands of the re shares because I was very curious, what about this post really hit this, you know, struck this chord and a lot of it was to your point, this conversation of like, look, this is how it's impacting businesses. It's not just the businesses that you think. Um you know, like massive tech businesses that can't, that are untouchable in a sense. Um It's also small businesses, it's food businesses, it's women, color led businesses. Um And, and I think that's really what folks wanted to highlight and share. And did it help your bottom line? Were people ordering people? Certainly ordered. People certainly shared. It was, it was a massive kind of uh moment for us where we're like, oh, we kind of turned some lemons into lemonade. Any questions? Hi. Oh my God. Um Amanda is co-founder of sequel. I too had a lot of money in S C B actually all of it. Um And I ended up having some weird conversations with people. So for Vanessa, I'm curious about those close to you, your friends. How did you educate, I guess is the word, the people around you that really didn't understand what was happening to smaller businesses. I saw somebody post on my Instagram like a friend and was like, down with tech founders. I hate them all. Like, I hope they're poor and know what it feels like. And I was like, I guess you don't want innovation. That's cool. Um So I'm, I'm curious about how you open that communication with people that were close to you. Yeah. Ultimately, I just like, sent a post to people. It really laid it all out. It was multiple slides and walked, walked them through the whole experience of what we were coming up against like what this meant for our business. And I also did many, many interviews that I shared with folks as well where I told people that when these massive systems fail us, the people that feel it the most are the people that are otherwise already most marginalized. And so there are so many statistics about how hard is to raise as a woman, as a woman of color. And so when it's when it comes to asking V CS to, you know, write an additional check to help you weather the storm or be a bridge to whenever that F B B money hits, those are the businesses that are going to feel it the most. And so, yeah, I definitely try to use my platform um as best I could to speak on this had a chance to go on CNN prime time and NBC and do multiple interviews and, and yeah, I really just tried to highlight the realities of what happens when these systems fail us. Yeah. And I wouldn't piggy back on the, the other piece of it I think is that there is something real there to that frustration like we are not Jason Callaghan and I thank God for that every day. But the reality is that we do live in a society where, you know, there is massive inequality. We do live in a society where it feels like five rich dudes get to buy whatever toy they want and like ruin democracy or very least Twitter. And so, you know, there's this, this frustration that you are hearing because that who's platformed and that is who controls a lot of money. And then, you know, we were talking backstage like Pacwest, which is another regional bank and like dear God, I am not starting a bank run right now, but Pacwest, another regional bank, it's being treated as a meme stock. And so when you have actual banks and actual people's entire life savings being traded like a meme stock because the guys, you know, on Wall Street bets subreddit want to do what they think that the guys on Wall Street probably are doing like there are some like macro problems in our society that I think this helped lay bare. Um And you know, I think it's a moment for tech to be a little bit introspective about what perception are we putting out there that people are cheering for our downfall even though it means that the janitors and you know, the, like everybody who works at these companies doesn't get payroll gets laid off gets hurt. Like there's a problem in the tech world that has to be addressed. At some point around that you have a question there. Hi, I'm Nama Roberts. Um, many of us in the room are, are CEO S but also advisors to the C suite. And I'm curious when you all were dropping kids off at preschool, the moment was happening, your phone is blowing up. What's one pragmatic tool, resource person that you wish you would have had in that moment that you didn't call your lawyer. Always call your lawyer. They're a great place to start before you start to. Like, for example, you talked about moving your money and I had to end up moving a bunch of money to my lawyer's escrow account because you can't as a venture fund, move your money around any way you want as a founder, you can't just send me your money and I'll hold it like call your lawyer because a lot of the things that you do immediately to try to solve a problem turns out or may be sort of totally illegal and you could be in trouble for them later on, I have one person on my board and then I am that person on two other boards that I that I wanna advise on. And one that I sit on that is my go to gut check. Um, and this gentleman for happened to be in Singapore. I called him. I said, here's the situation, let's work through it. Called him probably 10 times. But I think finding that confidant, I had him. So I'm not answering your question but making sure you've got that one point person that you can be transparent with, that you can work through things that you can talk it out because sometimes there is not a clear answer and you've got a pro con pro you know, your path forward. I have two. Um I, although I did have them to some extent, uh two sides, emotional and practical on the emotional side, somebody to tell you, especially for first time founders, you did nothing wrong. Like even just hearing those words, I was like, oh I, you're right. I trusted a bank to store my funds like of course, um but somebody had to tell me that because I was writing these emails to my investors almost like apologizing um or feeling like I was doing something irresponsible. So that was the first one of my advisers and mentors just texted me that like, hey, just, no, you really did nothing wrong. Um And then the second piece is somebody who either is going to step up and provide bridge capital or help you get it and really be alongside you to say, hey, these are your options. Like if you're looking at short term loans. This is what I, you know, I'm helping you do research on them. I'm like, you know, reaching out to folks that I know, like someone who's really tactically working with you to solve the biggest problems. Perfect way to close this up. Thank you so much.