The Silicon Valley Bank Is In Crisis, And Venture Capitalists Are Urging Startups To Withdraw Their Funds

Both US and European venture capital firms have urged their portfolio companies to withdraw money from Silicon Valley Bank amid fears of a run.

‍

A $2.25 billion equity raise from General Atlantic and other investors helped Silicon Valley Bank shore up its capital Thursday, causing its shares to plunge 60%. Friday's premarket trading saw shares of the company drop another 60%.

‍

Over the years, SVB has developed relationships with the venture capital community, making it one of the most important banks in the technology startup space. The venture capital industry in the U.S. relies on it to provide traditional banking services and fund tech projects.

‍

Companies in the portfolios of numerous venture capital funds, including Founders Fund, Union Square Ventures, and Coatue Management, have been advised to move their funds out of SVB before the bank collapses. According to founders with accounts at SVB who spoke on the condition of anonymity to Trade Algo, having funds frozen at the bank could be deadly for money-burning startups.

‍

Pear Ventures, a San Francisco-based early-stage VC firm, advised its portfolio network on Thursday to withdraw funds from SVB. Gusto, a payroll management system, is one of the products in Pear's portfolio, alongside Edge DB, an open-source database.

‍

During the recent developments with Silicon Valley Bank, which we are sure you all are watching closely, we wanted to reach out to you and advise you to move any cash deposits you may have with the bank to another bank. According to an email obtained by Trade Algo, Nitschke, Pear's chief financial officer, advised founders to move their cash deposits to another bank.

‍

You might be able to open interim accounts faster with smaller banking platforms like PacWest, Mercury, or First Republic Bank in this market, but larger money center banks (like Citibank, JP Morgan Chase, and Bank of America) are the best.

‍

When Trade Algo contacted Pear, he did not respond immediately.

‍

A question by Trade Algo about whether SVB had enough assets to process startup withdrawals weren't immediately answered by SVB.

‍

Silvergate winds down its crypto-centric operations

There were some founders of Silicon Valley Bank this week who were reminded of the 2008 financial crisis when banks fell due to mortgage crises.

‍

It is challenging for SVB to raise technology funding in this environment, which is characterized by a chilly IPO market and cautious VCs against a backdrop of weaker macroeconomics.

‍

A low-interest rate environment made raising capital for startups much easier in the tech heydays of 2020 and 2021.

‍

The VC funding market has slowed as rates have risen, and company valuations have risen as well. The startup industry has been burning through cash from earlier rounds of funding even though funding rounds have slowed.

‍

In addition, it means SVB has had to drain deposits from its account at a time when it is losing money on excess funds invested in U.S. debt securities, which are now falling in value after the Fed hiked rates.

‍

An advisory firm based in London is advising founders to withdraw two months' worth of "burn" capital from SVB in order to finance overhead expenses.

‍

According to Hussein Kanji, Hoxton's founder partner, some funds have expressed a feeling of confidence in SVB, in a note to founders on Thursday. There is a trend among other funds to encourage companies to withdraw their funds from SVB. We'll have to wait and see how this all turns out.

‍

It is asymmetrical risks for you if the prophecy comes true."

‍

Trade Algo quoted Kanji as saying, "While the mess is being sorted out, startups' accounts are at risk of being frozen."

‍

According to Kanji, SVB could either be bailed out by the U.S. Federal Reserve or acquired by another company.

‍

As the bank's attempts to raise capital failed, the company hired advisors to consider a sale, sources told Trade Algo.

‍