Silicon Valley Bank, the prominent startup and venture capital bank that was abruptly taken over by regulators Friday, had made big bets on the biotech space in recent years, and its sudden downfall leaves life sciences companies particularly vulnerable.
The main concern is whether or not early-stage biotech companies that banked with SVB will be able to access their cash. With no cash flow, nascent pharmaceutical startups rely on their cash reserves to fund drug development.
SVB was an active pillar in the biotech community — a regulation-laden industry where companies often spend years and billions of dollars before ever seeing profitability. Per its Q4 2022 earnings report, 12% of the bank’s $173 billion in deposits belong to the health care and biotech sector.
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The bank’s failure could have wide-reaching impacts in biotech. Life sciences is already a risky industry to fund — a drug company can easily spend around a decade and billions of dollars to develop a single product, and many drugs fail.
Still, as recently as January, SVB was interested in expanding its life sciences business. The bank pointed out in its Q4 earnings presentation that the life sciences and health care space was a robust market and worth digging into further.
Biotech spending spree
The bank, in large part thanks to biotech, had already enjoyed a boom in 2020 and 2021 when funding to health care-related sectors flourished. Not only did it provide financial services to nearly half of all tech and life sciences companies in 2022, it boasted large clients that invested in the health care space such as Bain Capital and Polaris Partners.
A few years earlier in 2019, SVB said it would acquire Leerink Partners, an investment bank that invested exclusively in the life sciences sector. The acquisition was a huge get for SVB, which had already been investing in the space but now was able to unlock a wealth of regulatory and advisory expertise it had not been privy to.
It was also big news for biotech and health care. Early-stage health care startups had a new avenue to raise money from an investor enthusiastic to grow its footprint in the space. And early-stage biotech companies, as they were nose deep in research and development, had a place to house their reserves.
SVB spent its next few years leaning further into the life sciences. Per a Q4 2021 earnings report, the financial institution hired another 50 investment bankers in the life sciences space. It called health care a “robust market” with a lot of opportunity.
One investor told me the news felt like hearing about a death in the family. “We’re all just trying to figure it out because SVB was such a great company,” the investor said in a text message. “They are a huge lender in the tech, biotech and venture community.”
Illustration: Dom Guzman
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