A month after the sudden collapse of crypto exchange FTX, Silicon Valley startup founders and venture capitalists are grappling with a new feeling: panic.
Immad Akhund, founder and CEO of a San Francisco–based banking startup called Mercury, had to deal with one such scare—about the future of his company—that became so serious he emailed Mercury customers on Dec. 2 to assure them of his startup’s financial strength. His message followed a rocky few weeks for Mercury, during which high-profile investors that had been either directly or indirectly exposed to FTX—including Sequoia Capital and Craft Ventures—cast doubts on the safety of using Mercury's banking services, according to two people with direct knowledge of the matter.
A Sequoia partner told employees of the firm to consider whether Mercury’s connection to Evolve Bank & Trust, a bank that had also worked with FTX, could imperil the cash of the startups that used Mercury. Craft urged founders to move their surplus cash to a large public bank rather than a startup’s cash management service. Mercury, for its part, said the fears were unfounded, pointing out to customers that their bank funds are protected by FDIC insurance. The concerns from well-known investors ultimately didn’t have a deep impact on Mercury’s business, said Akhund. But they illuminated how much the FTX collapse has upended the status quo for startups.
“Last year, people were not thinking too much about ‘Where is my money sitting and how does it work?’” Akhund said. “This year has put that into focus."