Silicon Valley Bank Update
Fortunately, it appears that the FDIC heard the startup community and understood the unique position that Silicon Valley Bank put itself into by being the “go to” bank for the startup community. At the time of the news of its collapse, it was clear to all of us that this could spell disaster for not only companies directly impacted by the loss of working capital, but also companies and individuals around the country and world that depend on the directly impacted throughout their daily lives. The Federal Reserve determined on Sunday night that it would cover the losses of depositors (customers) and restore their accounts in full as of Monday morning so that those customers could withdraw and transfer funds to new accounts opened over the weekend.
As of the time of this writing, SVB is technically operational as a new holding bank has been set up to assume the responsibilities of the original SVB - now operating as SVB N.A., and a new CEO, Tim Mayopoulos, has been appointed. They’ve sent emails to customers making assurances that the bank is on solid ground and requesting that they keep funds on deposit. While it is easy to think that this would be a wildly ridiculous ask, many founders are quickly discovering that the ease of transacting and interacting that they found at SVB was an anomaly in the banking world and that tasks as simple as requesting a letter of authorization requires a trip into a local branch instead of receiving a secure pdf.
The coming weeks will show the direction things are heading.
Y Combinator Stopping Late Stage Investing - Lays off 20% of Workers
In other news, Y Combinator has decided to shut down its late stage, follow on investing portion of its business. Stating that the type of investing distracts away from the original YC mission, Gary Tan made the announcement on its website Monday, March 13, 2023. This was overlooked by many as the panic over SVB was still in full effect when it was made. However, it’s definitely of note because people in the industry may begin questioning if this is a sign that late stage follow on investments may be slowing (Series B, C, etc.). While nothing so far has indicated any trend is afoot, it’s worth keeping an eye on. Tan was definitely careful to indicate this was more about staying in line with the mission of YC than a purely economic decision.
YC is rightly known for early stage investing. In recent years, we have also done some late stage investing. But late stage investing turned out to be so different from early stage that we found it to be a distraction from our core mission. So we’re going to decrease the amount of late stage investing we do.
In addition to the closing of the fund, YC also announced it has laid off almost 20% of its staff. It appears that this is partially related to the closing of the late stage investment department and the natural elimination of the positions. But, like most other tech companies (and I believe they fall into that category even if they don’t actually make an app) they are feeling the crunch of rising interest rates and inflation. Many companies in the tech and startup sector have laid off and eliminated thousands of positions just over the past month or so, and this is part of that trend.
The hope is that this isn’t a sign of a downturn, but a necessary action to keep everything running smoothly. They’ve been an important part of the startup sector for years, and the source of many great companies we use today.
Blog Post
I recently published a great post on my blog explaining 8 reasons startups should issue stock options to employees. Here’s a snippet…
Stock options are a popular form of compensation that companies offer to employees as a way to incentivize and retain top talent. By issuing stock options, corporations, as well as employees, can benefit in a number of ways.
1. Stock options give employees a sense of ownership in the company. When employees have a stake in the company, they are more likely to work harder and be more committed to the success of the business. This can lead to increased productivity and a stronger corporate culture. Not only that, but employees who hold stock options also have a direct financial interest in the company's performance, which can lead to a more engaged workforce.
2. Stock options can be a cost-effective way for companies to attract and retain top talent. Rather than offering large salaries or bonuses, companies can offer stock options as a way to align the interests of employees with the success of the company. This can be particularly beneficial for startups and other companies with limited resources, as it allows them to offer a competitive compensation package without breaking the bank.
To read the rest, check out the full post here.
YouTube
Finally, check out a recent video I posted regarding the top three steps beginning startups should follow when getting set up in order to be positioned for their legal needs into the future.