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The seizure of a Silicon Valley bank has left a huge hole – and a huge opportunity – in the world of climate finance

TechTechnologyThe seizure of a Silicon Valley bank has left a huge hole – and a huge opportunity – in the world of climate finance
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A view of the Silicon Valley Bank headquarters in Santa Clara, CA, following the federal government’s intervention on the bank’s collapse on March 13, 2023.

Nicolas Lepins | Anadolu Agency | Getty Images

Silicon Valley Bank was the go-to bank for startups looking for bankers who understood startup life and balance sheets. This was especially true for a group of startups being created to address climate change.

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Afterwards a very stressful weekend For many startup founders and investors, banking Regulators plan to backstop SVB’s deposits, ensuring that depositors do not lose their money.

Established in 1983 specifically to assist startups, SVB has a strong and established business in climate, with 1,550 climate technology and sustainability customers, according to its website,

“Silicon Valley Bank had a great reputation in the energy transition and was willing to put their money where their mouth is, unlike many of their peers.” Mona DajaniHead of Renewable Energy and Infrastructure Law Shearman & Sterling,

“Many clean energy companies banked with SVB because they had an established and dedicated clean energy practice and had more experience in clean energy than most regional and large emerging counterparts,” Dajani told CNBC.

But the climate space has grown since SVB started, and it paves the way for new lenders to service the market.

“Fundamentally, the companies that are coming out of the climate right now have real strength. These are foundational companies, and people want to lend to them because it’s good business,” explained Katie RaeCEO of engineAn accelerator and venture fund focusing on “hard techniqueincluding climate startups.

“Just in the last three days, I’ve probably had 50 emails in my inbox from different providers saying, ‘Hey, I know SVB isn’t in good shape. We do venture loans, too.’ So many are going to emerge,” Rai told CNBC in a phone conversation on Tuesday.

Wind turbines operate at a wind farm, a major energy source for the Coachella Valley, on February 22, 2023, near Whitewater, California.

Mario Tama | Getty Images

Understanding how startups work

Venture-backed startups are an unusual type of business. In their early stages, they may not have cash flow, revenue or even customers. Instead, they rely on venture funding, where investors offer cash in exchange for equity, hoping startups prove their technology, find customers and eventually grow into giants.

Providing banking to these types of customers requires special skills and an appetite for risk-taking.

“Nobody understands startups as well as Silicon Valley Bank and how to lend to them,” says zachary boguea longtime tech investor and co-founder of DCVC,

Boge told CNBC, “I imagine the startup’s application being just as easily turned down by the risk committee of a large bank.”

it was exactly like that bill clericoMay 2009 Experience. When Clarico moved to Silicon Valley with Rich Aberman to grow his fintech company we will giveHe had a Bank of America small business account, but the account didn’t have the services the startup needed.

“The Silicon Valley banks understood that even though we only had $10,000 or so in deposits at the time, we had great potential,” Clerico told CNBC.

As it turned out later, SVB was right in betting on Clerico. WePay was acquired By JPMorgan Chase In December 2017.

“The early investment in our relationship paid off,” Clerico told CNBC. “Over time our deposits grew to hundreds of millions, we borrowed millions from them in venture loans and we processed billions through their accounts.”

Clerico to launch in January 2022 Vascular Capital, a $35 million venture capital Fund investing in wildfire technology. He sincerely hopes that someone can fill the gap left by SVB.

“Some may associate its balance-sheet driven downturn with the failure of this startup-centric business model – but really, I think banking startups is a great business and a role that needs someone to fill, Clerico told CNBC. (Notably, Clarico is an angel investor. wedOne startup is working to fill this need.)

“I expect SVB and their business model to survive in some form,” Clerico said.

The ‘1,000 pound gorilla’ of venture debt lending

In the climate tech ecosystem, SVB was particularly prominent in lending to companies with venture capital funding, known as “venture debt”. This is essential for startups that are still not generating enough cash flow to be self-sustainable, especially when they are between funding rounds.

“It adds a little bit to the capital that they’ve raised, extends their runway a little bit and gives them more time to make progress on their business,” Rai told CNBC. Rai said the venture debt for runway companies could add between three and six months.

“There are other places that venture loans, but the Silicon Valley bank was the 1,000-pound gorilla in the room,” said ami kasarCEO of Business Loan Advisors multifunding,

“The concern is that even in cases where deposits have been made in full, credit facilities are no longer available to companies with SVBs, and this is one area where they are important,” Dajani said.

That said, lending to venture-backed companies is a riskier endeavor than traditional banking, Kassar told CNBC.

“I’ve always wondered how they’ve managed to get regulators to allow such a huge concentration of venture debt,” Kassar said.

Solar panels are installed at the Solar Farm at the University of California, Merced, California, on August 17, 2022.

Nathan Frandino | reuters

climate is good business

SVB was an early supporter of climate technology, helping many climate tech companies get off the ground. But as the sector matures, participants believe other financiers will be more willing to lend to those companies.

Adam Braun, founder of Climate Startup, said, “Silicon Valley Bank’s early support and commitment to backing climate tech startups certainly helped catalyze the huge migration of capital that you are now seeing deployed in the region. Have been.” climate clubtold CNBC.

For example, SVB provided funding for 60% of community solar projects, said Kiran BhatrajuCEO of arcadiaA climate technology company that, among many services, Helps connect people to community solar projects,

In it, the bank was “a climate bank pioneer,” it said. steph spearsco-founder and CEO of Sankranti Power Technologieswho has created a technology to help making solar projects accessible,

“But renewable energy has come a long way in the last decade and there is now a wider universe of potential financiers coming on board,” Spears said.

Braun expects to see the same.

“I believe we will see many more institutions creating dedicated climate practices and funds to support the startups that are emerging in this space,” Braun told CNBC. “While SVB may be the first mover, I do not think that the events of the past week will reduce the desire to finance and support the emerging companies that are driving the rapidly growing climate tech sector.”

First Republic and JPMorgan are “increasingly making this category a priority,” chauncey hamiltonis a partner Venture Capital Firm XYZ, told CNBC. “More and more banks are paying attention to the climate,” Hamilton said.

mark cassidyFounder of Venture Capital Firm Vestigo VenturesAgree with this.

“Climate solutions are too powerful to stop with one bank failure,” Cassady told CNBC. “The need is critical and time is not on our side to find a solution. Since this is a fundamental need, it will get more support rather than less.”

However, that transition will take time. And for companies working to combat global warming, time is their worst enemy.

“I hope the big banks will eventually step up and provide the financing needed to get the industry moving forward – these projects are very attractive and the promise of climate technology is huge. But it will take some time, and delay could be costly. fight against change,” Bhatraju told CNBC.

“With all the new investments in climate tech and the opportunities afforded by the IRA [Inflation Reduction Act], there’s a ton of speed. We don’t want to lose him,” Bharanju said.

The rise of the carbon sequestration industry

Correction: A previous version of this story misspelled Chauncey Hamilton’s name.

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