This photo shows SVB Financial Group’s TradingView stock market chart on a smartphone with the SVB Financial Group logo in the background.
Igor Golovnev | Light Rocket | Getty Images
Venture capital firms on both sides of the Atlantic have been urging their portfolio companies to divest money from troubled lender Silicon Valley Bank, deepening fears of a run on the tech-focused bank.
Silicon Valley Bank’s shares plunged 60% on Thursday after it was announced it had to shore up its capital with a $2.25 billion capital raise from investors including General Atlantic. Shares of the company fell another 60% in premarket trading on Friday.
SVB is a major bank in the technology startup space that has built relationships with the VC community over its forty years of existence. It offers traditional banking services while funding technology projects. It is considered the backbone of the venture capital industry in the United States
Numerous VC funds, including big players like Founders Fund, Union Square Ventures and Coatue Management, have advised companies in their portfolios to remove their funds from the SVB to avoid the risk of being caught in a possible bank failure. Freezing funds at SVB could be deadly for a money-burning startup, according to founders with accounts at the bank, who spoke to CNBC on condition of anonymity.
Pear VC, an early-stage VC firm based in San Francisco, requested its portfolio network to withdraw funds from SVB on Thursday. Pear’s portfolio includes the open source database Edge DB and the payroll platform Gusto. A spokesman for Gusto said the company “does not use Silicon Valley Bank to fund payroll services and operations for customers” and therefore its customers are unaffected.
“Given the situation with Silicon Valley Bank, which I’m sure you’re all watching, we wanted to get in touch with you and recommend that you move any cash deposits you may have with SVB to another banking platform,” he said Anna Nitschke, Pear’s Chief Financial Officer, in an email to the founders obtained by CNBC.
“In this market, a larger money center bank (think Citi Bank, JP Morgan Chase, Bank of America) is best, but in the interest of time, you can open intermediate accounts faster with smaller banking platforms like PacWest, Mercury, or First Republic Bank.”
Pear was not immediately available for comment when contacted by CNBC.
SVB didn’t immediately respond to CNBC’s question about whether it had enough assets to process startup payouts.
The settlement of the cryptocentric silver gate Bank and pressure on Silicon Valley Bank this week reminded some founders of the 2008 financial crisis when banks collapsed during the mortgage bust.
SVB is struggling in a difficult environment for technology financing as the IPO market remains cool and VCs remain cautious on the backdrop of a weaker macroeconomic situation and rising interest rates.
During the tech heydays of 2020 and 2021, ultra-low interest rates meant it was much easier for startups to raise capital.
As interest rates have risen, company valuations have seen a kind of reset and venture capital-backed companies are feeling the pinch as the VC finance market slows. Even as funding rounds slow, startups have had to continue to burn money from previous rounds to cover their overheads.
This is bad news for the SVB as it means companies have had to siphon deposits from the bank while it loses money on excess cash invested in US debt, which has now fallen in price following the Fed’s rate hikes.
Hoxton Ventures, a London-based VC firm, is advising founders to withdraw two months’ worth of “burn,” or venture capital, from SVB that they would use to fund overheads.
In a note to the founders on Thursday, Hussein Kanji, Hoxton’s founding partner, said: “We have seen that some funds have shared their view that they continue to have faith in SVB. We’re seeing other funds encouraging companies to take their money out of the SVB, let’s see how this all plays out.
“If the self-fulfilling prophecy comes true, the risks to you are asymmetrical.”
In a separate conversation with CNBC, Kanji said, “The big danger for startups is that their accounts will be frozen while the mess is sorted out.”
Kanji believes SVB could either be bailed out by the US Federal Reserve or taken over by another company.
The company has hired advisers to explore a possible sale after failed attempts by the bank to raise capital, sources told CNBC’s David Faber on Friday.
https://www.cnbc.com/2023/03/10/vcs-urge-startups-to-withdraw-funds-from-silicon-valley-bank.html
