How Minnesota's venture-backed businesses navigated Silicon Valley Bank's collapse

Early Monday morning, after days of intense anxiety and stress, Liz Giorgi finally exhaled.

Giorgi — the chief executive and co-founder of a Minneapolis-based on-demand photo and video services studio called Soona — could access her company's deposits from Silicon Valley Bank, the Santa Clara, Calif.-based lender that collapsed at the end of last week following a tumultuous bank run.

Giorgi had backup plans to meet payroll and protect Soona's 150 or so employees in case funds didn't land Monday.

"Thank goodness they did," she said.

Across Minnesota, CEOs that use SVB for payroll processing or lines of credit faced a similar predicament. Meanwhile, Minnesota-based venture capital firms spent days communicating with portfolio companies that worked with the bank.

In Slack messages and phone calls, founders expressed concern and uncertainty about accessing funds, said partner Ryan Broshar of venture capital firm Matchstick Ventures in Minneapolis and Boulder, Colo. Bread and Butter Ventures managing partners Mary Grove and Brett Brohl were also working with their portfolio companies, whether or not they were SVB clients, as well as partners at Rally Ventures, which has offices in the Twin Cities and Silicon Valley. (Grove is the spouse of incoming Star Tribune publisher Steve Grove.)

Had the Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation not said they would protect all SVB depositors Sunday and provide access to money by Monday, some of Matchstick's portfolio companies, including those in the Twin Cities, would not have made payroll, said Broshar, who declined to name those companies.

"We're glad to see federal leadership with the immediate backstop and are hopeful for a positive long-term outcome for the entirety of the SVB business," Grove and Brohl said in a statement.

SVB is not an investor in Matchstick Ventures, Broshar said, but startups in his fund's portfolio widely used the bank.

"It was definitely stressful and frantic and a relief," he said of the FDIC announcement.

Twin Cities' venture leaders said a significant portion of the region's, and country's, startup system depended on SVB. Startups banked with SVB because its leaders understood the industry and were "strong partners for the whole startup ecosystem," Broshar said.

Now, startups need to establish new banking relationships, which won't happen overnight.

Soona, which has attracted more than $45 million from investors since launching in 2019, needs a new bank by the end of the month, Giorgi said. Finding one that understands startup models will be a challenge.

With a restaurant, for example, a traditional bank understands the risk profile and knows how to repossess an expensive refrigerator if the business is unsuccessful. Soona invests in computer servers and cloud computing.

"When we're talking about technology startups and risk profile, the equation that banks run about what is there that could potentially be an asset that we could sell if something went wrong, they don't know how to do that," Giorgi said..

Her next banking partner also needs to understand how venture-backed startups burn through cash in pursuit of profitability.

"We're actively aiming to spend money in order to create an entire category of innovation," she said.

Giorgi learned of SVB through its connection to accelerator operator and venture investor Techstars, which runs multiple programs in the Twin Cities. SVB became Soona's bank and an equity stakeholder, though Giorgi is unsure what will happen with that investment.

Moving forward, Grove and Brohl recommended Minnesota startups diversify their funds with at least two financial institutions.

"This could be a period of uncertainty as that transition happens," Broshar said. "But ultimately, I think it'll be on solid ground once the dust settles."