On Friday March 10 Mike Wheeler, president and chief legal officer of payroll startup Patriot Software, was on a five-day cruise off the coast of Florida celebrating his brother’s wedding. When he went ashore that morning for a short stop in Key West, his cell service came back on and he got a text from a representative of the company’s former bank: “Are you ready to wire some dollars from Silicon Valley Bank??? 😳”

Wheeler answered with a question mark. Overnight, his company was to send about $40 million in wages to cooks, librarians and 46,000 other American workers through Silicon Valley Bank, or SVB. The banker sent back a screenshot of a stock chart showing that SVB shares had fallen nearly 90 percent while Wheeler was at sea. The SVB was on the verge of collapse, and Wheeler, stuck on the ship, knew next to nothing about the crisis unfolding on land.

Late Wednesday, SVB, famous for lending to startups and great wine parties, announced it would raise more money after losing $1.8 billion on low-interest bonds. The news followed weeks of gossip about the bank’s health and sparked panic after its chief executive interrupted a conference call aimed at allaying customer fears. SVB customers tried to withdraw a total of $42 billion in the day before Wheeler received his cryptic text message, in what regulators say is the largest bank run in U.S. history. The startup industry bank closed that day with a cash shortfall of $958 million. Wheeler soon learned that things had gotten worse since then.

Friday, March 10

When Wheeler heard the news in Key West, he learned that SVB’s problems affected not only Canton, Ohio-based Patriot, but also the approximately 57,000 organizations for which it calculates and pays payroll and payroll taxes. SVB holds these funds in escrow for several days before sending them to workers at 12:01 a.m. on Fridays. Wheeler discovered that the chaos unfolding at SVB had disrupted that system when he began reviewing delayed text messages. No one was paid — not even Patriot employees.

By then, Ellie Egan, founder and CEO of Veracity Selfcare in New York City, had experienced a full 24 hours of panic. Venture capital firms including Andreessen Horowitz and Peter Thiel’s Founders Fund have reportedly advised their portfolio companies to diversify away from SVB, and Egan’s investors joined in on Thursday as the banks rallied. But Veracity’s seed funding agreement stipulated that the money had to stay in the bank.

So far, Egan has been holding back on moving the money. But she was still worried. “I was really afraid we’d lost everything but the bare minimum,” she says, referring to the $250,000 in the account guaranteed by the U.S. Federal Deposit Insurance Corporation (FDIC). This will cover only two months’ salary. “As a founder, you have a lot of investors who write to you and they say, ‘What’s your plan? What is your plan? And you say: “I don’t know.” I really can’t have a plan.’

Taryn Aronson, CFO of Tovala, a Chicago-based smart oven and food delivery company, had tried to extract the company’s money from SVB the night before. But on Friday, she woke up to the unpleasant news that the transmissions had failed. Just like Patriot’s deposits for 8,100 customers that day, the money is stuck. Tovala started implementing a worst-case scenario to stretch the remaining capital for a couple of months. It was a “total crisis,” says Tovala founder and CEO David Raby.

Mid-morning Friday, while the cruise ship was still temporarily docked in Key West, Wheeler, of the Patriot, left his family in the butterfly conservatory and ran the Zoom war room with colleagues in Ohio. They tried to resend the failed payroll transfers to no avail. At 11:56 a.m. ET, SVB emailed the statement it just issued government press release saying the FDIC is taking over. An SVB representative agreed to join the Patriot’s War Room call and delivered the news no customer wants to hear: The worst-case scenario has come true and the bank has collapsed.

Inside SVB, some employees felt that their jobs were lost and that the bank was dead. “The general consensus was that it was a shutdown,” said one department head, who asked to remain anonymous because he was not authorized to speak to the media. SVB and the FDIC declined to comment for this story.

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