In this photo an image of the trading chart TradingView of SVB Financial Group displayed on a smartphone with the logo of SVB Financial Group in the background.
Igor Golovniov | Rocket | Getty Images
Venture capital firms on both sides of the Atlantic have been urging their portfolio companies to pull money from embattled lender Silicon Valley Bank, raising fears of a run on the tech-focused bank.
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Shares of Silicon Valley Bank plunged 60% on Thursday after announcing it needed to bolster 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 and has developed relationships with the VC community throughout its 40 years of existence. It provides traditional banking services and also finances tech projects and is considered a backbone of the venture capital industry in the US
Numerous VC funds including big players such as Founders Fund, Union Square Ventures, and Coatue Management, have advised companies in their portfolios to pull their funds out of SVB to avoid getting caught up in the bank’s potential bankruptcy. Having funds frozen 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, a startup VC firm based in San Francisco, urged its wallet network to withdraw money from SVB on Thursday. Pear’s portfolio includes the open-source database Edge DB and the payroll management platform Gusto. A spokesperson for Gusto said the company “does not use Silicon Valley Bank to fund customers’ payroll and operations” and therefore customers are not affected.
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“In light of the situation with Silicon Valley Bank, which we’re sure you’re all watching, we’d like to reach out and recommend that you move any cash deposits you have with SVB to another banking platform,” said Anna Nitschke, Pear’s chief financial officer, in an email to founders obtained by CNBC.
“In this market, a larger central money bank (think Citi Bank, JP Morgan Chase, Bank of America) is best suited, but in the interest of time, you may be able to open interim accounts more quickly with smaller banking platforms such as PacWest, Mercury, or First Republic Bank.”
Peer was not immediately available for comment when CNBC contacted him.
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SVB did not immediately respond to CNBC’s question whether it had sufficient assets on hand to handle startup withdrawals.
The phasing out of crypto Silvergate Bank and pressure on Silicon Valley Bank this week reminded some founders of the 2008 financial crisis, in which banks collapsed during the mortgage crisis.
SVB struggles in a tough technology finance environment as the IPO market remains cool and VCs remain cautious amid a weaker macroeconomic situation and rising interest rates.
In the tech heyday of 2020 and 2021, ultra-low interest rates made it much easier for startups to raise capital.
As rates have risen, corporate valuations have undergone some reset, and venture capital-backed firms are feeling the pinch as the venture capital funding market slows down. Even as funding rounds slow, startups have had to continue to burn money from previous rounds to cover their overheads.
That’s bad news for the SVB, as it means companies have had to withdraw deposits from the bank at a time when the bank is losing money on excess cash invested in US debt securities, which have 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 they would use to fund overheads from SVB.
In a note to the founders on Thursday, Hussein Kanji, Hoxton’s founder, said: “We have seen some funds pass on the view that they continue to have confidence in SVB. We see other funds encouraging companies to withdraw their money from SVB. waiting to see how this all turns out.
“If the self-fulfilling prophecy occurs, the risks for you are asymmetric.”
In a separate conversation with CNBC, Kanji said, “The big danger for startups is having their accounts frozen while the mess is sorted.”
Kanji believes SVB could be bailed out by the US Federal Reserve or taken over by another company.
The company has hired advisers to look into a potential sale after the bank’s attempts to raise capital failed, sources told CNBC’s David Faber on Friday.
