On this photo illustration of the TradingView stock market chart of SVB Financial Group seen displayed on a smartphone with the SVB Financial Group logo within the background.
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Enterprise capital firms on either side of the Atlantic have been urging their portfolio firms to maneuver money out of embattled lender Silicon Valley Bank, deepening fears of a run on the tech-focused bank.
Silicon Valley Bank shares plunged 60% Thursday after disclosing that it needed to shore up its capital with a $2.25 billion equity raise from investors including General Atlantic. The corporate’s stock was down one other 60% in premarket trading Friday.
SVB is a serious bank within the technology startup space, having developed relationships with the VC community over its 4 decade existence. Providing traditional banking services while also funding tech projects, it is taken into account a backbone of the enterprise capital industry within the U.S.
Quite a few VC funds, including major players like Founders Fund, Union Square Ventures and Coatue Management, have advised firms of their portfolios to maneuver their funds out of SVB to avoid the chance of being caught up within the potential failure of the bank. Having funds frozen at SVB may very well be deadly for a money-burning startup, based on founders with accounts on the bank who spoke to CNBC on the 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. Pear’s portfolio includes the open-source database Edge DB and payroll management platform Gusto. A spokesperson for Gusto said the corporate “doesn’t use Silicon Valley Bank to fund customer payroll services and operations” and that subsequently it clients are unaffected.
“In light of the situation with Silicon Valley Bank that we’re sure all of you might be watching unfold, we wanted to succeed in out and recommend that you just move any money deposits you might have with SVB to a different banking platform,” said Anna Nitschke, Pear’s chief financial officer, in an email to founders obtained by CNBC.
“On this market, a bigger money center bank (think Citi Bank, JP Morgan Chase, Bank of America) is best suited, but within the interest of time, you may have the ability to open interim accounts faster with smaller banking platforms comparable to PacWest, Mercury, or First Republic Bank.”
Pear was not immediately available to comment when contacted by CNBC.
SVB didn’t immediately respond when asked by CNBC whether it had enough assets available to process withdrawals from startups.
The wind-down of crypto-centric Silvergate Bank and pressure on Silicon Valley Bank this week reminded some founders of the 2008 financial crisis, through which banks toppled through the mortgage bust.
SVB is grappling with a difficult technology funding environment because the IPO market stays chilly and VCs remain cautious against the backdrop of a weaker macroeconomic situation and rising rates of interest.
Within the tech heydays of 2020 and 2021, ultra low rates of interest meant that it was much easier for startups to boost capital.
As rates have risen, company valuations have seen something of a reset, and venture-backed firms are feeling the pinch as VC funding market experiences a slowdown. Even with funding rounds slowing, startups have had to maintain burning through money raised from earlier rounds to cover their overheads.
That is bad news for SVB, because it means firms have had to empty deposits from the bank at a time when it’s losing money on excess money invested in U.S. debt securities, which have now fallen in price after the Fed’s rate hikes.
Hoxton Ventures, a London-based VC firm, is advising founders to withdraw two months’ value of “burn,” or enterprise capital they might use to finance overhead, from SVB.
In a note to founders Thursday, Hussein Kanji, Hoxton’s founder partner, said: “Now we have seen some funds passing on a view that they continue to be confident in SVB. We’re seeing other funds encouraging firms to withdraw their funds from SVB. It stays to be seen how it will all play out.
“If the self-fulfilling prophecy occurs, the risks to you might be asymmetric.”
Speaking individually to CNBC, Kanji said: “The large danger for startups is that their accounts will likely be frozen while the mess is being sorted.”
Kanji believes SVB may either be bailed out by the U.S. Federal Reserve or acquired by one other firm.
The corporate has hired advisors to explore a possible sale after attempts by the bank to boost capital failed, sources told CNBC’s David Faber Friday.
