Sunday afternoon, Gov. Phil Murphy announced that the N.J. Economic Development Authority will be opening a series of programs designed to provide emergency assistance to New Jersey-based companies impacted by the collapse of Silicon Valley Bank.
Some of the programs will open as soon as Monday.
How many New Jersey companies need assistance – and to what extent – is not clear.
An unscientific survey taken over the weekend by the EDA and TechUnited:NJ found that “hundreds” of New Jersey companies were connected to Silicon Valley Bank. And while many had less than $250,000 – meaning their complete deposits were insured by the Federal Insurance Deposit Corporation, there are others who have multi-million stakes in the bank.
To be clear, the EDA programs should not be viewed as a long-term bailout, but as a short-term solution for companies suddenly without available funding to pay their bills, including payroll. Simply put, it will allow them to continue their day-to-day operations in the coming weeks.
More specifically, the package of assistance includes the re-opening of the EDA’s Entrepreneur Support Program, the launch of the EDA’s Angel Match Program and the scheduling of a special board meeting for consideration of an emergency liquidity facility.
Both programs will open on the EDA’s website early this week, with Angel Match launching this morning (with pre-qualifications opening at 9 a.m.) and the Entrepreneur Support Program launching on Wednesday.
For more information on the Angel Match program, click here.
Here’s a closer look at all three initiatives:
The N.J. Entrepreneur Support program: Funded at $5 million, it offers a guarantee to support repayment of an investor loan advanced for working capital purposes and is designed to encourage investors to support businesses within their portfolios during this liquidity crisis when investor support is particularly crucial.
The program provides an EDA guarantee of up to 80 percent for an eligible new loan or convertible note by a qualified investor into a New Jersey qualified business, not to exceed a $200,000 guarantee per company.
The Angel Match program: Funded at $20 million, it will help early-stage businesses bridge funding gaps as they scale their operations and refine their products. The program, which will match up to $500,000 in direct investments, is designed to fuel the growth of early-stage companies while increasing the pool of available capital, stimulating further investments into New Jersey’s innovation ecosystem.
The funding may be used for product development, marketing, research and development, and other working capital needs. This will extend the capital support from investors during this time of uncertain banking resources.
An Emergency Liquidity program: The EDA board will consider the creation of a $10 million emergency liquidity facility that will review financial support requests for New Jersey-based companies with over $250,000 in deposits at SVB. This product is anticipated to support impacted companies with a loan of up to $500,000 to provide short-term financing options for at most 12 months.
The EDA board will consider the program approval at a board meeting to be scheduled in the coming week. Further details will be announced prior to the board meeting, the EDA said.
Murphy, a former Wall Street banker who has made support for an innovative economy among his top priorities since he was candidate, said Sunday Morning on Face the Nation that he was ‘concerned but not panicked.’
He elaborated in the Sunday afternoon release.
“Ensuring the success of New Jersey’s businesses is a vital component in building a stronger and fairer New Jersey economy,” he said. “Now, more than ever, it is essential that our state supports companies that contribute to our economy, innovation ecosystem, and the dynamism of our cities. By offering a suite of programs for New Jersey entrepreneurs impacted by the SVB collapse, we will continue to keep residents employed and support companies that are vital to our innovation ecosystem.”
The collapse of SVB
What happened: Silicon Valley Bank, the No. 1 bank for the tech and venture capital sector, announced Thursday that it had sold some assets – at a loss – to ensure it had enough liquidity to cover accounts. This announcement, which was meant to calm those with deposits, did the opposite. A panic ensued, causing a run on the bank, which could not handle the withdraw requests. By Friday, it had failed and was taken over by the federal government.
What was the damage: Companies (and individuals) with fewer than $250,000 in deposits (the maximum insured by the Federal Deposit Insurance Company) likely will get all of that money back, as soon as today. Unfortunately, more than 90% of the bank’s approximately $200 billion in deposits fall above the $250,000 threshold.
What happens now: Treasury Secretary Janet Yellin has said the feds will not bail out the bank – though it is getting pressured to do so. It appears more likely that the bank’s assets will be divided and sold off to other financial institutions (which would do so for a variety of reasons, bringing stability to the industry being one of them).
Best-case scenario: Companies banked by SVP use short-term loans (such as the ones being offered by the EDA) to stay afloat until more secure institutions assume control of SVB’s assets.
Worst-case scenario: Nervous companies and investors make runs on other banks for no reasons other than a panic – leading to other financial institutions being in turmoil.
EDA CEO Tim Sullivan said the programs show the state’s commitment to both the tech sector and the businesses as a whole.
“Under Gov. Murphy’s leadership, New Jersey has made monumental strides in growing our innovation economy and scaling companies of the future,” he said. “Today’s announcement serves as a testament to New Jersey’s commitment to the success of our entrepreneurial sector, with the state pivoting almost overnight to launch programs that provide critically necessary support for entrepreneurs during times of economic uncertainty.”
Kathleen Coviello, the chief economic transformation officer at the EDA and a long-time player in the tech financing world, said the state has the sector’s back.
“During this challenging time, we remain committed to ensuring that investment dollars continue to flow to New Jersey’s emerging technology and life sciences companies,” she said. “Entrepreneurial businesses are critical to our state’s overall economy. The suite of programs announced today will connect them with the working capital they need to keep their operations running and will keep our innovation economy moving forward.”
Silicon Valley Bank has long been known as the bank for tech start-ups across the country, both as a place to get a loan (when other banks would not) and to park money that has been raised for your startup. While many outside the tech/VC world were not familiar with the bank, it had grown into the 16th largest bank in the country.
Companies (and individuals) with fewer than $250,000 in deposits (the maximum insured by the Federal Deposit Insurance Company) likely will get all of that money back, as soon as today. Unfortunately, more than 95% of the bank’s approximately $200 billion in deposits, fall above the $250,000 threshold.
Treasury Secretary Janet Yellin said Sunday that the federal government will not bail out the bank – though it is getting pressured to do so. It appears more likely that the bank’s assets will be divided and sold off to other financial institutions – which would be interested in doing so for a variety of reasons, including adding a large number of new customers in one action, as well as helping to bring stability to the industry.