In this photo of the TradingView stock market chart of SVB Financial Group shown displayed on a smartphone with the SVB Financial Group logo in the background.
Igor Golovniov | White clouds | Getty Images
Venture capital firms on both sides of the Atlantic have been urging their portfolio companies to move money out of lender Silicon Valley Bank, deepening fears of a run on the bank by focus on technology.
Shares of Silicon Valley Bank fell 60% on Thursday after it said it would have to dig up capital with a $2.25 billion equity raise from investors including General Atlantic. The company’s stock was down another 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. Providing traditional banking services while also financing tech projects, it is considered the backbone of the US venture capital industry
Several VC funds, including major players such as Foundation Fund, Union Square Ventures and Coatue Management, have advised companies in their portfolios to move their assets out of SVB to reduce the risk of to avoid being caught in the bank’s failure. Having cash frozen at SVB could be fatal to cash-burning startups, according to founders with accounts at the bank who spoke to CNBC on condition of anonymity.
Pear VC, an early-stage VC firm based in San Francisco, urged its portfolio network to withdraw funds from SVB on Thursday. The Pear package includes the open source database Edge DB and the payment management platform Gusto. A spokesperson for Gusto said the company “does not use Silicon Valley Bank to fund customer payment and transaction services” and therefore its customers are not affected.
“Due to the situation with Silicon Valley Bank that we’re sure you’re all looking at, we wanted to reach out and suggest that you move any cash deposits you may 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 money center bank (think Citi Bank, JP Morgan Chase, Bank of America) is more appropriate, but with time, you may be able to open checking accounts more quickly with high- smaller banking platforms such as PacWest. , Mercury, or First Republic Bank.”
Pear was not immediately available for comment when contacted by CNBC.
SVB did not immediately respond when asked by CNBC whether it had enough assets to withdraw from startups.
Crypto-centric exchange rates have declined Silver Gate Bank and pressure on Silicon Valley Bank this week reminded some founders of the 2008 financial crisis, in which banks collapsed during the mortgage bust.
SVB is entering a difficult technology funding environment as the IPO market remains cold and VCs remain cautious in the face of weaker macroeconomic conditions and rising interest rates.
In the tech days of 2020 and 2021, ultra-low interest rates meant it was much easier for startups to raise capital.
As rates have risen, company valuations have seen something of a reset, and venture-backed companies are feeling the pinch as the VC funding market slows. Even with funding rounds slowing down, startups must continue to burn through funds raised from earlier rounds to cover their costs.
That is bad news for SVB, as it means companies will have to drain deposits from the bank at a time when they are losing money on too much money invested in US debt securities, which has now fallen in price following the Fed’s rate hike.
Hoxton Ventures, a London-based VC firm, advises founders to withdraw two months’ worth of “burn,” or venture capital they would use to fund additional funds, from SVB.
In a note to founders on Thursday, Hoxton founding partner Hussein Kanji said: “We’ve seen some funds pass on the idea that they’re still confident in SVB. We’re seeing other funds encouraging companies to withdraw their money from SVB. see how this all plays out.
“If the self-fulfilling prophecy happens, the risks to you are disproportionate.”
Speaking separately to CNBC, Kanji said: “The big risk for startups is that their accounts will be frozen while the mess is being sorted out.
Kanji believes that SVB could be outsourced by the US Federal Reserve or acquired by another company.
The company has hired advisers to explore a possible sale after efforts by the bank to raise capital failed, sources told CNBC’s David Faber on Friday.
