Follow-up: Regulators close Silicon Valley Bank in stunning downfall for financial mainstay of tech industry
Venture capital firms in Seattle are advising portfolio companies to reconsider their positions with Silicon Valley Bank amid potential funding troubles at the tech-focused bank.
Shares of Silicon Valley Bank plummeted Thursday after the firm said it would book a $1.8 billion loss related to its sale of more than $21 billion in securities. The bank is launching a $2.25 billion stock sale as it grapples with declining deposits and rising interest rates.
Fears of potential illiquid assets rippled through the tech startup world Thursday as some firms advised founders to look for alternative banking options.
SVB is a key partner for tech startups in the Seattle area and beyond that use it to store cash and raise venture debt, among other services. It was the banking partner for nearly half of the venture-backed tech and healthcare companies listed on stock markets in 2022. SVB has also done co-lending deals with Seattle firms such as WestRiver Capital and Lighter Capital.
Aviel Ginzburg, general partner at Seattle-based venture capital firm Founders’ Co-op, said he spoke with two “multibillion-dollar private companies” that had pulled money out of their SVB accounts.
Some startups have already reported a delay in fund withdrawal from SVB, The Information reported.
Even if investors and founders have confidence in SVB’s ability to stay solvent, the risk of being wrong may cause some to take action.
Some are confident that SVB will survive and serve its customers.
“SVB has been working nonstop to help its clients manage risk and avoid short term business disruption,” said Todd Owens, CEO of Seattle startup Kevala, which raised venture debt from the bank. “I have total confidence that they will manage through this.”
More broadly, there are concerns that SVB is the “canary in the coalmine,” said Philip Bond, a finance professor at the University of Washington. Recent interest rate hikes have been so large “that they will test the limits of deposit stickiness,” he said.
“The biggest risk I’d worry about is that many banks are exposed to the same forces that SVB is,” Bond noted. “This would be a big negative shock to the economy.”
GeekWire managing editor Taylor Soper contributed to this report.
Editor’s note: Comments from Todd Owens were added.
