The founder of Hack Club, a national nonprofit organization based in Shelburne, managed to take most of his organization’s money out of the failing Silicon Valley Bank before the California bank closed.
“Fortunately, we got out in time,” said Zach Latta, founder of Hack Club.
Latta founded Hack Club nine years ago to create a community supportive of teenagers interested in coding. The organization moved from California to Shelburne in 2020. Journalist Christina Asquith, who lived in Charlotte, had joined Hack Club in 2018 and persuaded Latta and his team to visit from California.
“We all really fell in love with Vermont and thought wow, what better place could there possibly be to try and build something beautiful like Hack Club for the long term?” Latta recalled.
Hack Club now serves about 25,000 teenagers in most states and 38 countries, he said.
Two years before moving to Vermont, Latta had realized that he needed to find a way for the activities of Hack Club chapters to be funded.
“They wanted to buy pizza for a meeting, and they were going out to their local communities, and they were finding donors but they had no way to receive those donations,” Latta said.
He found that Hack Club’s teenagers’ budgets were too small for other nonprofits to receive donations for them.
So he created Hack Club Bank to receive those donations. The foundation channels donations to activities for 994 Hack Club groups around the country.
The Hack Club Bank funds were held at Silicon Valley Bank, which closed on March 10 when depositors rushed to pull out their money after the bank announced a $1.8 billion loss on the sale of bonds it owned.
The bank had invested in long-term government bonds, which at the time brought higher interest rates. But as the Federal Reserve raised rates, those long-term bonds were no longer as attractive, so the bonds lost value.
At the same time, venture capitalists started doing fewer deals, and startups began pulling money out to meet expenses. The bank had to sell its bonds at a loss to make sure it had enough money to cover customer withdrawals. When depositors found out the bank had lost money, they started a run on the bank.
Latta said he first heard on March 9 that something was going really wrong with Silicon Valley Bank.
“I was getting text messages on my phone,” Latta said. “I was getting calls from people. There’s tons of stuff happening on Twitter and other spaces. Our engineers were: ‘Oh my God! We need to do something!’’’
Hack Club Bank wired most of its money that day from Silicon Valley Bank to First Republic Bank, leaving only a small amount in its Silicon Valley Bank account to cover day-to-day cash-flow needs, Latta said. The next day, Silicon Valley Bank closed its doors.
Since then, Latta said, Hack Club Bank’s engineers have spent days and nights rewiring Hack Club Bank to work on the platforms for First Republic Bank and Bank of America. That rewiring involved rewriting what was likely thousands of lines of code, Latta explained, as engineers connected expenses such as payroll and, on the other hand, incoming donations to accounts at the new banks.
“Our code needs to directly interface with our banking partner, and every bank has different tools and software interfaces,” Latta said.
Meanwhile, Hack Club Bank opened an account with Bank of America, which takes three days. Once Bank of America opened on Monday, Latta said, Hack Club Bank wired funds there for safekeeping until it could conduct a proper evaluation for a long-term banking solution. The funds are there now.
“It has been a crazy week adapting to the changes,” Latta said. “Most banks are not very tech-enabled.”
He said Hack Club Bank relies on the ability to write code that interfaces with money to keep Hack Club operating and cost-efficient.
There was a hairy moment Tuesday when Hack Club Bank’s credit cards were declined because not enough money was in its temporary bank account, but mostly, Latta said, the switch has gone smoothly.
“The financial security of the (organization) is strong because we acted so quickly,” he said.
Latta declined to say how much money Hack Club Bank had at Silicon Valley Bank. Instead, he pointed VTDigger to Hack Club Bank’s website, which on Friday showed a balance of nearly $1.8 million, way over the $250,000 in deposits that the Federal Deposit Insurance Corp. normally insures.
“If we were to have that money lost, that would be devastating for the organization,” Latta said.
He said Hack Club Bank’s annual budget is about $2 million a year.
In the end, the Federal Deposit Insurance Corp. decided to insure all deposits at Silicon Valley Bank, so Hack Club Bank would have survived had it left its money there. But when the panic hit last week, Latta had no way of knowing that.