A $500 million term sheet in 12 hours: How Rippling struck a deal as SVB was melting down

As a serial entrepreneur who has famously endured some ups and downs, Parker Conrad thought he'd seen it all. Still, he never imagined that there would be a run on Silicon Valley Bank that would upend Rippling, his six-year-old workforce management company, a run so severe that Rippling would liquidate $130 million in money market funds that its customers needed for their payrolls.

He also didn't imagine that in the span of 12 hours, Rippling would be able to secure $500 million in fresh funding to protect his company in the event that the markets spiraled even more out of control.

Yet both things happened in short order, enabling Rippling to avert disaster and also quite possibly changing the 1,800-person company forever. Now, a week later, Conrad suggests he’s still processing it all, saying there wasn’t really time to panic; there was too much to do.

Everything everywhere all at once

As with so many customers of the 40-year-old bank, Conrad first heard that there was trouble brewing last Thursday morning, March 9. Conrad received a call from a founder friend around 10 a.m., asking “‘Hey, what are you guys doing about SVB?’” Conrad recalls now. “I was like, ‘What are you talking about?’ and he said they’d gotten a call from an investor at Valor Equity Partners who told them they should move their money out of SVB.”

Conrad’s initial reaction was, "That seems crazy; I haven’t heard anything about that.” Then he started looking more closely at his laptop, where on Twitter, moving money out of the bank had very suddenly become the talk of the startup world.

With SMS messages starting to appear from Rippling’s own investors on his phone, Conrad quickly opened a Slack channel titled “SVB risk,” inviting the company’s finance team but hesitating briefly before looping in the company’s CTO, Albert Strasheim, and other engineers. Says Conrad: “I didn’t want to panic anyone or set off a crisis internally until we were sure there was an issue.”

By 11:30, it was clear; there was an issue. As Silicon Valley Bank’s longtime CEO, Greg Becker, launched a Zoom call to provide context around an 8-K filed by the bank the previous day, a growing percentage of Rippling’s engineering team joined the Slack conversation from different parts of the country to hash out a way to move the company’s banking and payment rails away from SVB to JPMorgan.

The good news for Rippling, which manages an array of services for its customers, from payroll to device management to corporate cards: it had already moved some of its banking business to JPMorgan nine months earlier. “It wasn’t out of any specific concern with SVB,” says Conrad. It just seemed wise to create some redundancies in its infrastructure, he says. Besides, Rippling had also launched a global payroll product in October and JPMorgan appeared to have “a lot more global capabilities,” he says.

Still, the team thought if ever push came to shove, they could move their payroll business, which processes roughly $2 billion in payments each month, away from SVB “within about two weeks.” Now, that window was, well, out the window.

“We didn't really think even at that time that SVB was going to fail, or that the payments were not going to go out,” Conrad says. The team thought more likely scenarios were that another bank would buy SVB, or that its risk profile might change by necessity or that there might be PR blowback on Rippling if it continued to be affiliated with a beleaguered bank. As of Thursday night, “We thought, we’ve got at least a week to move over even in the worst scenario.”

Frozen

Most people don’t think about how their paychecks make their way from their employer to their bank, but it’s not a straight shot. Rippling debits its clients’ accounts early in any given week, providing enough time for the funds to settle or clear. SVB has historically received Rippling’s instructions to pay out those funds to employees, then forwarded those payments on to the Federal Reserve, which has then sent out the money to the employees’ various banks as part of the broad interbank system called ACH. Yet funds debited early last week and that appeared to have been sent out overnight last Thursday evening never made it to the Federal Reserve.

Conrad woke up to the bad news at 5:30 a.m. Friday morning. Jumping out of bed, he walked downstairs to the kitchen with his open laptop in hand, cleared away Legos on the kitchen table, and sat down as “ops team” members at Silicon Valley Bank described a backup owing to the many wires and payments the bank was processing at the same time.

There was not a liquidity issue, they reiterated. The payments would go out.

Conrad was still sitting in his kitchen at 9 a.m. when he realized they would not.

It was then that the announcement came out: the FDIC had seized Silicon Valley Bank, meaning Rippling needed to figure out, fast, how to access funds and get them to people who needed those paychecks. Specifically, Rippling needed $130 million to pay roughly 50,000 employees. Along with setting up some preliminary payment rails with JPMorgan, it also had capital in money market funds with the bank. It began liquidating them.