In this photo an illustration of the TradingView stock market chart of SVB Financial Group is seen displayed on a smartphone with the SVB Financial Group logo in the background.
Igor Golovnyov | Lightrocket | Getty Images
Venture capital firms on both sides of the Atlantic are urging their portfolio companies to get money out of the embattled lender Silicon Valley BankFears of a run on the tech-focused bank are deepening.
Shares of the Silicon Valley bank plunged 60% on Thursday after disclosing that it needed to shore up its capital, raising $2.25 billion in equity from investors including General Atlantic. The company’s stock was down 60% in premarket trading on Friday.
SVB is a leading bank in the technology startup space, having developed relationships with the VC community over its four decades of existence. Providing traditional banking services along with funding technology projects, it is considered the backbone of the venture capital industry in the US.
including several VC funds Key Players Firms such as Founders Fund, Union Square Ventures and Coatue Management have advised companies in their portfolios to move their funds from SVB to avoid the risk of being caught in a possible bank failure. According to founders with accounts at the bank who spoke to CNBC on condition of anonymity, money deposited in SVB could be fatal for a money-burning startup.
San Francisco-based early-stage VC firm Peer VC on Thursday urged SVB to pull funds from its portfolio network. Peer’s portfolio includes open-source database EdgeDB and payroll management platform Gusto. A spokesperson for Gusto said the company “does not use Silicon Valley Bank for customer payroll services and operations” and therefore its customers are unaffected.
“In light of the situation with Silicon Valley Bank, we are sure you are all looking into this, we would like to reach out to you and recommend that you move any cash deposits you may have on another banking platform with SVB can move,” said Anna Nitschke, Piers’ chief financial officer, in an email to the founders obtained by CNBC.
“In this market, a large money center bank (think Citibank, JPMorgan Chase, Bank of America) is best suited, but in the interest of time, you may be able to open interim accounts faster with a smaller banking platform like PacWest. , Mercury, or First Republic Bank.”
Pears was not immediately available to comment when contacted by CNBC.
SVB did not immediately respond when asked by CNBC whether it has enough assets to process startups’ exits.
Wind-down of the crypto-centric silvergate The pressure on the bank and the Silicon Valley bank this week reminded some of the founders of the 2008 financial crisis, in which the bank collapsed during the mortgage bust.
SVB is battling a difficult technology funding environment as the IPO market remains cold and VCs remain cautious against a backdrop of weak macroeconomic conditions and rising interest rates.
In the tech heyday of 2020 and 2021, very low interest rates meant that it was much easier for startups to raise capital.
As rates have risen, company valuations have seen some resets, and venture-backed firms are feeling the pinch as the VC funding market is experiencing a downturn. Despite funding rounds being slow, startups continue to burn through the cash raised from earlier rounds to cover their overheads.
This is bad news for SVB, as it means companies have had to pull deposits out of the bank at a time when it is losing money on excess cash invested in US debt securities, which are now at risk of a Fed rate hike. The price has since fallen.
London-based VC firm, Hoxton Ventures, is advising founders to take a two-month “burn,” or withdrawal of venture capital, to be used to finance overhead from SVB.
In a note to founders on Thursday, Hussain Kanji, founding partner at Hoxton, said: “We’ve seen some funds go through with the view that they believe in SVB. We’re looking at other funds looking to acquire companies from SVB. We are encouraging you to withdraw your funds. It’s still pending. Let’s see how it all pans out.
“If the self-fulfilling prophecy holds, then the risks to you are asymmetric.”
Speaking separately to CNBC, Kanji said: “The big risk for startups is that their accounts will be frozen while the mess is resolved.”
Kanji believes that SVB may either be bailed out by the US Federal Reserve or acquired by another firm.
the company has hired consultants to explore a potential sale after the bank’s efforts to raise capital failed, sources told CNBC’s David Faber on Friday.