Editor’s note: GeekWire reached out to Will Canestaro, managing director of Washington Research Foundation and WRF Capital, on Friday to get his take on the impact of Silicon Valley Bank’s closure on biotech companies and the tech industry more broadly. His answer is below.
SVB was a central and densely connected node in the startup and VC ecosystem. It can’t be easily pruned from the banking system without consequences for privately-held companies and the economy broadly.
I’ve been receiving calls and emails all day and we’ve been assessing the exposure for our portfolio companies to SVB. For most early-stage and lower cash burn startups, the federally-insured limit will be enough for them to make payroll and keep functioning until everything is sorted out. For larger companies, they will depend on the quick resolution of the situation via DINB of Santa Clara.
It’s important to remember that a crisis of confidence isn’t necessarily a crisis of fundamentals, and every indication seems to suggest that SVB’s assets exceed their liabilities. Right now, my concern is more around when money will be available as opposed to if deposits at SVB are lost.
I’m also heartened by the quick and decisive action from the FDIC, which appears to have been monitoring the situation since early in the week. I believe there is a strong incentive for regulators to continue supporting a soft landing.
The most likely scenario is that over the next couple of weeks a plan is created and the assets of SVB become liquid for withdrawals and SVB is acquired by another bank at a modest discount. The things that I will be watching for are:
- Erratic investor behavior over the next couple of weeks for VCs that had cash tied up at SVB.
- Large and later-stage companies with significant assets tied up in SVB where the insured $250,000 won’t be enough to cover them until this is sorted out.
- What if any service providers run into trouble as companies go on a cash-hold until this is sorted out.
