General Catalyst, Khosla Ventrues, Kleiner Perkins among firms looking to offer loans to portfolio companies
Two of tech’s biggest entrepreneurs, OpenAI CEO Sam Altman and storied venture capitalist Vinod Khosla, are offering personal capital to startups on the brink of SVB collapse as their money remains locked up at Silicon Valley Bank. The bank, which was shut down and taken over by regulators on Friday, is involved with nearly half of all US venture capital-backed startups.
Beyond the fact that it is an investor’s job to invest, there’s something to be said about using personal capital to help businesses. The situation, rapidly unfolding, is also complicated by the fact that it’s the weekend so people can’t easily move money or they don’t have liquid cash.
Altman, the former CEO of Y Combinator, confirmed to TechCrunch that he’s using a “decent amount” of personal capital. He believes money will be freed up by next week and the loans are more to help startups which “need to make payroll now.”
Khosla said on Twitter that he is offering personal loans at borrowing cost to companies in the Khosla Ventures portfolio. Altman and Khosla both took to Twitter to urge other venture capitalists to offer emergency cash to employees. “Today is a good day to offer emergency cash to your startups that need it for payroll or whatever. no docs, no terms, just send money,” Altman tweeted, while Khosla said that large VC firms should step up, “especially those taking home millions in fees.”
Khosla Ventures CMO Shernaz Daver said over e-mail that the firm’s perspective is that using “LP capital” in this situation is “inappropriate,” and that the focus for VC firms should not be on making money. Daver declined to share details on how much capital Khosla has given due to the fact that it’s an evolving situation.
It’s a more difficult option for those who don’t have the ability to invest personal capital in startups. If a venture capitalist uses money that they raised from LPs, for example, the terms will need to be stronger due to the expected upside of that capital. (One venture capitalist responded to Altman’s call to action saying that they are offering half of their last check, on a SAFE, with last round terms, using investors money).
General Catalyst‘s Hemant Taneja is also helping portfolio companies make payroll with what he describes on Twitter as “very low interest loans.” Its unclear if GC is using partners’ personal capital or money from the fund. Other funds working on offering loans, per Taneja’s tweet, are Khosla Ventures, Greylock, Mayfield, Kleiner Perkins, Upfront, Ribbit Capital, Redpoint, Lightspeed and Altimeter Capital.
One investor, whose primary fund and management company account was at SVB, is waiting for Monday to know how much money they can offer in the first place. The investor, who spoke to TechCrunch in background, said that they’re deciding checks on a case by case basis and that the right terms for these deals are still being figured out by lawyers. They need to make sure it’s legal – given that lending money could require a need for a lending license.
Right now, they said, the best practice is a promissory note or convertible note with a repayment feature.
Winnie CEO and co-founder Sara Mauskopf said that her venture backers are offering “an incredible lifeline right now”
“I’ve been fortunate to have great backers who know the strength of my business and have been willing to help with this timing issue at hand,” she told TechCrunch. “Everyone is working through this right now but my investors are not looking to make money from this at all. They are just looking for a legally acceptable path forward.”
Erica Wenger, a former head of platform at Worklife who is currently building her own venture firm, said that GPs should lean on their limited partners, especially family offices, to close big checks for later-stage special purpose vehicles. That said, she says the legal complications around a lot of how these loans and investments are structured is giving her pause.
“If it were me I’d explore every option to make sure my portcos are covered,” she said, noting that emerging fund managers do not have capital to do this themselves. “GPs have relationships with deep pockets. It’s in everyone’s interest to see these companies succeed!”
Other leaders in the tech world are also looking for ways to unlock cash for founders in peril. Brex CEO Henrique Dubugras is currently working to raise over a billion dollars in a weekend to help fund an emergency bridge credit line that he believes will help startup customers impacted by Silicon Valley Bank’s collapse be able to make payroll next week. Dubugras declined to comment on how much capital has been committed for the credit line thus far, but said he’s on back to back calls trying to get funds locked down.
If you have a juicy tip or lead about happenings in the wake of SVB’s collapse, you can reach Natasha Mascarenhas on Twitter @nmasc_ or on Signal at +1 925 271 0912. Anonymity requests will be respected.