A bank widely known for serving the startup and venture capital community was closed by financial regulators on Friday, in what is now being called the largest US bank failure since the 2008 financial crisis. Regulators took control of all deposits, and the bank is now in receivership under the US Federal Deposit Insurance Corp. (FDIC). CNBC reports that insured depositors (typically up to $250,000) will be able to access their deposits no later than Monday (March 13).
Silicon Valley Bank had been attempting to raise the money it needed to stay in business, and just before regulators stepped in, they were in talks to sell. Earlier this week, as The Verge explains, SVB had sold off a huge chunk of its securities (at a loss), thanks to a significant drop in deposits. The bank places the blame for this on VC-funded companies spending cash at an extreme rate, while VC funding and the tech sector have taken quite a headline-generating hit in recent months. Rising interest rates played a significant role here, as well.
For context, as NPR reports, Silicon Valley businesses clean up during the pandemic — to the tune of about $174 billion in deposits at SVB. Fast forward to recent weeks when SVB’s troubles caused what amounted to essentially a bank run.
So, how will SVB’s shutdown impact the tech sector? Entrepreneur Brad Hargreaves posted a lengthy Twitter thread, outlining just how integrated SVB was in tech, but also tangentially:
One interesting point Hargreaves made focuses on the current overall slowdown of funding:
While broader repercussions are not apparent quite yet, SVB’s closure will be felt in the sector. As former president of CIBC Innovation Banking Mark McQueen outlined in an opinion piece on his blog:
“Entrepreneurs will have a harder time raising debt, at least temporarily. LPs will frown, for sure, which [could] make it harder for VCs to raise their next fund. The risk managers at competing banks will conclude what they’ll conclude, but SVB will no longer be easily held out as a proof-point of the appeal of lending to the innovation economy, even if this crisis had nothing to do with the credit quality of SVB’s loan book.
