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Even Silicon Valley Startups Are Struggling During The Pandemic

By Leonardo Castañeda The Cupertino Courier, Calif.

WWR Article Summary (tl;dr) Leonardo Castaneda shares the personal stories of several Silicon Valley-based entrepreneurs who are struggling to survive during the pandemic.


By all appearances, Sri Ramaswamy was doing everything right. She founded an AI company in Silicon Valley when it had one of the hottest economies in the world to help insurance companies with fraud detection and litigation. By early March, she had three clients and was set to raise her first outside funding, $1 million from angel investors.

But when the pandemic hit, the investors pulled out and two of her clients went bankrupt. She applied for $40,000 in PPP funds for Infinilytics, her San Jose company, and got half that, she said. Now, the money has run out.

"I've been living on my personal IRA retirement account," Ramaswamy said. "I don't have much longer. In fact, I had to sell my second car to pay the rent last month."

Despite $659 billion in federal assistance for small businesses, the loans may simply have delayed a closure apocalypse, as businesses battered by lockdowns try to navigate the worst economy since the Great Depression.

Four months into the Bay Area's coronavirus lockdown, business owners say they've exhausted their federal Paycheck Protection Program loans. And many are still shut down now that California has reimposed restrictions amid rising case counts. Unemployment remains at historic highs and for those who have managed to squeak by on outdoor activities, winter is coming.

The next month is critical for Ramaswamy. She needs to sign new clients, which would allow her to attract new investors. If she doesn't, she might have to lay off her seven remaining U.S. employees and keep only her India-based technical workers until she can find more business.

"Silicon Valley is a mirage. People think there's lots of money, but there are only certain people, certain companies, who get access to this money," said Ramaswamy, a woman of color without Ivy League credentials in a male-dominated industry often driven by personal connections. "People have told me, 'Why don't you get a white male as a CEO?'"

Ramaswamy's financial troubles are not unique. Small Business Majority, a Bay Area-based national advocacy group, found that among members able to even get a loan, nearly one in four received less than what they had applied for.

Bianca Blomquist, the group's Northern California outreach manager, said many of the smallest businesses, who don't usually have access to legal experts or accountants, were more likely to not receive a loan and to be underfunded if they did. The problem was particularly stark for Black business owners. According to the group's survey, 76 percent of white business owners who applied received a PPP loan, compared to 49 percent of Black business owners. Black entrepreneurs were also more likely to say they would lay off staff when their loans run out, and 68 percent said they're struggling to make commercial mortgage or rent payments, compared with 48 percent of white respondents.

If those businesses close, it could have devastating implications for their communities, particularly communities of color already hard hit by unemployment.

"Everyone is impacted by a small business closure, not just the workers they employ, the family of the workers, the neighborhood," Blomquist said. "We have a long road ahead."

Community is everything for Maria Gastelumendi, a Peruvian immigrant who has run the Rising Loafer Cafe in Lafayette with her Jordanian husband for almost 18 years. She buys from local suppliers the ingredients for her fresh-baked loaves of nine-grain wheat, country oat and garlic basil breads. Signs on her walls and windows promote shopping and eating locally. And she banks locally, with the Patelco credit union, headquartered in Dublin.

"It is more the way I see life and that is what has geared me to do what I do," she said. "I come from the Andes, where the communities are small like the one in Lafayette where I live now."

During the lockdowns, she's been limited to outdoor seating for breakfast and lunch, as well as dinner for two to go -- platters of Peruvian chicken, Mediterranean chicken and lasagna that customers order in the morning and pick up in the afternoon. Her landlord gave her a break early on, she said, charging her about $600 for insurance, property taxes and maintenance of common areas at the shopping center where her cafe is located -- that's down from her usual rent of about $3,000.

But eventually, her landlord will want the full rent. Gastelumendi was able to get a $10,000 PPP loan through Patelco, and a separate $2,200 loan through Square, far less than what she said she needed.

"I hope some solution comes on the horizon because when I am unable to serve outdoor in winter, with the rain, I don't know if these little dinners are going to hold the business," she said. "There's a lot of uncertainty."

That uncertainty is what first drove Patelco, which didn't have a commercial lending operation, to join the PPP program. About 200 business customers, including Gastelumendi, asked them to participate, many after being rebuffed by major banks. In less than a month, Patelco set up its PPP operation, eventually awarding about 100 loans averaging $17,000, according to chief lending officer Richard Wada.

For Gastelumendi, being forced to close would mean losing her restaurant, decorated with awards from state and county leaders for her environmental leadership, as well as copper pots and pans donated by loyal customers. She knows the risks of the virus for herself, her two employees and her customers. Many of her regulars are older, Gastelumendi said, and they've been worried about coming out for lunch or take-out during the pandemic.

"I am scared for myself too, but I have to survive," she said. "I came from too far to quit now." ___ Distributed by Tribune Content Agency, LLC.

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