DEXMAT’s First Crisis: Bank Failure

Well, that escalated quickly! No sooner had I announced DEXMAT’s successful fundraise than Silicon Valley Bank, where we had parked all of our investment, failed and we no longer had access to our funds. It began to look like we had set a new record for fastest startup failure of all time!

Below I will chronicle the tumultuous week, with special attention to communications I shared with our team and investors in the interest of open-sourcing my approach to crisis response. If others can learn from what I did, great. If others have feedback to help me learn and do better next time, even better.

Wednesday, March 8

This was DEXMAT’s “launch” date. We went live with our public funding announcement, held interviews, and broadly shared our vision with the world. This was a success and I felt pleasantly at ease as I boarded my plane for Houston.

Thursday, March 9

I spend Thursday at CERAWeek, both attending presentations from other friends / colleagues and also presenting DEXMAT’s vision to attendees. My talk was well received and I was inundated afterward with interest from investors, customers, and – of course – service providers. My phone was in airplane mode most of the day.

That night I remained off-grid(ish) and had dinner with a dear friend from high school. Afterward, I headed straight for bed, blissfully unaware of the SVB storm clouds that were brewing.

Friday, March 10

I arrived at the DEXMAT production facility early Friday morning, prepared for a day of time with the team and interviews with new potential team members. As I checked my email, there was a curious message from SVB about how strong their balance sheet was. That was strange but, as I was catching up on two full days of missed emails and lots of new inbounds, I didn’t think much of it and moved on.

Then, as I was checking twitter, I saw a press release from the FDIC that they had put SVB into receivership – suddenly SVB had my full attention! I was able to log in and see all of our funds there but confidence was low that I could actually access them.

We had an account with another bank, but only our CTO had those login credentials. Our CTO happened to be taking a well deserved holiday with his partner on the other side of the world as I frantically tried to reach him in the middle of his night to see if he could initiate a wire for our funds. He did initiate such a wire but, again, confidence was low that it would go through.

I spent much of the rest of Friday on hold with the FDIC (They never picked up in the end.), reassuring our Houston team that they would be fine, and trying to joke about the situation (a defense mechanism for sure, but what else could I do?) with my interviewees. Friday night I slept very uneasily.

Saturday, March 11

Saturday I finally had the capacity to go into war room mode and assess our situation and options. DEXMAT was actually in a pretty good position relative to others. Of course it would have hurt us to lose all of our investment capital, but we had plenty of operating capital in another account, modest expenses, and significant revenues. Still, with so much uncertainty around SVB’s future, it was a useful exercise to plan for several scenarios.

In the meantime, candidates for a Government Relations role for which we haven’t even started hiring yet, used this crisis as an audition, connecting me with policy makers at the federal, state, and local levels, to share how catastrophic it would be for climatetech specifically and innovation more broadly if they just let SVB fail without any intervention.

I was actually surprised that I wasn’t already being inundated by anxious investors (This gave me confidence that our investors weren’t the ones causing the unnecessary run on SVB.), but I wanted to get out ahead of any such inquiries and transparently communicate our status (as I had learned in crisis management training). Plus I wanted to ask them for any help they might be able to provide. Below is a lightly censored (just dollar amounts) copy of the email I sent out midday:

Dear DEXMAT Team, Investors, and Advisors,

Executive summary: DEXMAT has significant exposure to Silicon Valley Bank but will very likely be fine in both the short and long terms.

First, the good news: last week’s public funding announcement and launch were a smashing success. We were covered in Axios, the Houston Chronicle, the Houston Business Journal, FinSMEs, InnovationMap, Benzinga, and others. Our presentation at CERAWeek was well received, traffic to our website has spiked, and we have had several inbound contacts from customers and investors alike: 

Thank you to all of you for helping us come out of the gate with such a bang!

Now, the bad news: after years of using Bank of America exclusively, DEXMAT recently opened a Silicon Valley Bank money market account and had parked much of our investment proceeds there. The failure of a 40-year-old, A-rated, large US bank was not on our bingo card of risks to consider in our treasury strategy!

Here is where we stand today:

Bank Of America operating account: $000,000
Silicon Valley Bank money market account: $0,000,000
Investment Funds Receivable: $000,000

Our Silicon Valley Bank exposure causes two concerns:
1. Short-term liquidity
2. Long-term asset recovery

1. Short-term liquidity
* Cash in our operating account is sufficient to fund seven weeks of on-plan expenses. “On-plan” includes forecasted new investments in growth.
* Cash in our operating account plus forecasted 90%+ revenues (POs received, active grants) is sufficient to fund four months of on-plan cashflow.
* Cash in our operating account plus forecasted 90+% revenues plus the remaining $000,000 of investment receivables is sufficient to fund seven months of on-plan cashflow.
* Cash in our operating account plus forecasted 90+% revenues plus the remaining $000,000 of investment receivables is sufficient to fund a “belt-tightened” operational plan (delayed hiring, reduced investments in marketing, more aggressive A/R, less aggressive A/P, deferred compensation starting with me) for more than one year.

2. Long-term asset recovery
* We initiated a wire for our SVB funds Friday, although I don’t expect it to go through.
* Our best understanding is that Monday we will have access to $250K via FDIC insurance.
* And by the end of the week we will have access to 50% of the remainder.
* We expect 100% recovery of the remaining funds but we are less certain about how long it will take.

3. Options and actions
* There may be another avenue to access our Silicon Valley Bank money market assets via a related custodial account at a different bank; we are investigating.
* I am in touch with multiple congresspeople and senators to ensure they understand the gravity of the situation. If this crisis is poorly handled, it would be catastrophic for climatetech, for American innovation, and likely it would cause a significant domino effect that would plunge us into a broader crisis. That’s above my pay grade, but I am at least trying to help policy makers understand the existential threat this represents for many organizations like ours.
* We have access to credit. For example, we could shore up liquidity by factoring our 90+% receivables. It would cost us a little bit in the long run but would add certainty now.
* We can take in more $ on our seed round. The round is technically still open as Aramco Ventures completes its CFIUS review. We generated a lot of interest over the last week, including from investors capable of writing small-for-them checks quite quickly.
* We can diversify our banks further in future. We will retain our Bank of America account. We will likely have a new account from whichever bank takes over Silicon Valley Bank’s assets. We could add another bank to the mix for increased risk management.
* We can engage a fractional CFO. Our small seed raise did not warrant building out a full C-suite so I am acting as not just the CEO, but effectively as the CFO, CRO, CPO, etc. as well. One reason I was late to react to this looming crisis was that I was focused on our launch and CERAWeek, so I was off-grid for two days – two very impactful days, it turned out! Some additional capacity with an eye always on finances might help us manage this risk in future.

4. Asks
* Urgently: if you have access to those who are influential in the US government’s SVB intervention, now is the time. We need a full-court press to ensure that they do the right thing and guarantee returns of deposits. I can be available on short notice if they need to talk to someone on the front lines.
* If you have knowledge or ideas from your other portfolio companies (or from prior experience) on how to increase the probability that we will emerge from this event unscathed, please share.
* If you have knowledge or ideas about how best to manage our risk of such black swan events in future, please share. This is far from my first rodeo, but I am always eager to learn from others.

Again, we believe that DEXMAT is well positioned here but there is still a lot of uncertainty ahead of us. We will know much more Monday but, in the interest of transparency, I wanted to go ahead and share our working view with you all, invite your advice and counsel, and make the specific asks above. 

Yours in solitude,

Bryan Guido Hassin
DEXMAT CEO

This email was largely well received. I received many responses ranging from advice to simple messages of support. It felt great to have such a helpful, supportive bunch of teammates and investors. We all agreed to focus on controlling what we could and to keep our fingers crossed for what we couldn’t. Saturday night I slept better, but not well.

Sunday, March 12

Sunday I departed Houston for Austin, where I had some commitments for SXSW. While I was on the bus (First time on Vonlane – highly recommended!), I posted a sardonic tweet about the SVB situation

This tweet received mixed reviews. It resonated with many of my fellow entrepreneurs who were staring extinction in the face without much sense of agency about it. Many people found it humorous and I was invited to be interviewed by multiple media platforms. On the other hand, it rubbed some of our investors the wrong way; they felt that I was making light of a very serious situation.

After I arrived in Austin, I went for an easy jog along the lake to clear my head and, upon my return, the news was breaking that the FDIC would guarantee all SVB deposits. You could almost hear the collective sigh of relief from all of the startups and investors gathered there for SXSW.

Sunday night began with dinner with fellow entrepeneurs, after which I was pulled into event after event after event throughout Austin. It was wonderful bumping into friends and colleagues I hadn’t seen before the pandemic and I think the atmosphere would have been very different had the FDIC not made their announcement. I finally made it to bed in the wee hours of the morning and slept . . . not uneasily, but not well either. I was exhausted from the roller coaster.

Monday, March 13

Monday was a very busy day. I spent most of it with Shell Ventures and CEOs of several of their other US-based portfolio companies. They put together a very thoughtful program and it was a good environment for us all to collaborate – rather than the entrepreneurs negotiating against the investors! Side benefit: for the first time in person, I was able to meet CEOs of Third Derivative startups in which Shell Ventures had invested!

I ducked out of the Shell program in the late afternoon to speak at an event organized by Climate Draft. It was a lot of fun and full of solution-oriented hope and optimism. Side benefit: I was able to meet even more Third Derivative CEOs! The one drawback was that they only had fizzy drinks, which I can’t handle. I made it through my talk without spitting all over everyone, though, so call it a win.

After rejoining Shell for dinner, I turned in earlyish. I had been trying all day to access the SVB website, but it was failing on me – likely due to thousands of others trying to log in at the same time – but I had faith that this would work out and I slept well.

Tuesday, March 14

I woke up barely in time for a podcast interview and hopefully made sense despite my still-fuzzy brain and octave-lower voice. Our CTO successfully accessed our SVB account and transferred all the money out. We may put some back in eventually, but we wanted to wait and see how things shake out with SVB’s next chapter.

Later, I sent a follow-up email to our broader team:

Dear DEXMAT Team, Investors, and Advisors,

Executive summary: DEXMAT has fully recovered its capital at SVB and is taking low-cost action to further mitigate risk in future.

Well, that was a tumultuous week! I am pleased to report that we have fully recovered 100% of our funds from SVB. Thank you to all of you who provided support and counsel. We have only just started this ambitious journey and it is wonderful to know early on that we can rely on all of you. I know that many of you were working behind the scenes as well – with policy makers and with your other portfolio companies. 

This was a good fire drill that tested DEXMAT’s capability to react quickly to a black swan event and hopefully we have emerged on the other side with more trust throughout our team, our investors, and our advisors. We may even have emerged with greater resolve, akin to the “remote miss” phenomenon observed in Londoners who survived WWII aerial bombardment. At a minimum, I hope you all see clearly that my intention as CEO is to communicate transparently and proactively during such times. 

100% funds recovery was the likeliest outcome, but as we say in all matters (customers, investors, etc.), don’t count it until the money clears the bank – which it has now done. So, back to business as usual? Of course not. As we also say, never waste a good failure! Some of the options I proposed in my original email cost us very little and make good risk management sense regardless. Please see below for the options we will likely pursue over the coming weeks and I welcome your feedback or experience with them:

* Diversify banks: I think it would be extreme to put USD $250k into 12 different banks, but proceeding with three banks, each of which maintains a minimum of one month expenses, will minimize our all-eggs-in-one-basket risk exposure.
* Raise more seed $: We have the potential to raise up to an additional $350k on our seed convertible note from investors who can move quickly. Bolstering our cash reserves will be prudent.
* Factor receivables: We have very strong revenue streams, e.g., from the US government. Products like Enduring Planet will bring those receivables from months out into our accounts today. 
* Fractional CFO: To manage all of the above, as well as the bookkeeping, AP, AR, and financial reporting that we already needed to transition off of our CTO’s shoulders, we will bring on a fractional CFO. Beyond these tasks, this new addition will keep their eye on our finances and financial risks such that we are not caught unawares – as we were last week – while my capacity is focused elsewhere.

Additionally, we have just brought in a new sales resource who is already having success converting conversations into revenue streams and, over the next three weeks, we will be submitting more than $1M of high-probability grant applications.

Thank you again for your support over the last week and for your trust and faith in me as CEO. This won’t be the last roller coaster DEXMAT endures, but I am glad to be riding together with all of you.

Yours in gratitude,

Bryan Guido Hassin
DEXMAT CEO

P.S. This actually wasn’t my first experience with a near-catastrophe like this; the next time we are sharing a pint or a nice bottle of wine, please remind me to regale you with my story of a startup early in my career that relied on Enron as our primary source of revenue!

What an ordeal! The ultimate outcome is fine, but I lost a lot of time/focus when I could have been building the business. A few lessons learned from this experience:

• DEXMAT has great investors. I would go to battle with this group any time!
• Proactive, transparent stakeholder communication is generally preferred over locking yourself behind closed doors and only coming out once you have an answer.
• A startup is never too early-stage for financial risk management.
• Communications, however well intended, can be received in different ways by different people – especially when anxieties are high.
• Never waste a good crisis as an opportunity for learning; the hero’s journey requires you to traverse the dark forest in order to emerge transformed.

I hope everyone else emerged as unscathed by this debacle. Like NetFlix’s Chaos Monkey, this should make affected companies more resilient in the end. Hopefully we (climatetech startups and investors) have learned some lessons and are now in an even stronger position to scale up transformational solutions globally.