Silicon Valley Bank, the de facto financial institution for much of the venture-backed startup world, was shut down by banking regulators on Friday morning following a dramatic decline in the company’s stock price and reports of a run on its deposits.
The Federal Deposit Insurance Corp. issued a statement on Friday that said it had been appointed receiver for the bank. Insured deposits of up to $250,000 were protected, regulators said. Further detail on what would happen to deposits over the insured amount weren’t available. The FDIC urged those depositers to call a hotline at 1-866-799-0959.
The fallout of the bank failure in Silicon Valley is sure to be dramatic. SVB is vastly interconnected with the rest of the venture-backed ecosystem and alone banks about half of all venture-backed startups in the U.S., as well as many of those companies’ investors.
The Santa Clara, California-based bank has 17 branches in the Golden State and Massachusetts. Those branches will reopen on Monday for business, the FDIC said. As of Dec. 31, SVB had about $209 billion in total assets and about $175.4 billion in total deposits, according to the regulator.
“At the time of closing, the amount of deposits in excess of the insurance limits was undetermined,” the FDIC said. “The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.”
— This is a developing story. Check back for more.
The dramatic sequence of events kicked off Thursday when SVB announced it had taken a $1.8 billion loss in Q1 by selling $21 billion in bonds — essentially its entire portfolio of securities available to sell — in order to shore up its balance sheet. It would seek to raise $2.25 billion by selling stock, it said. Shares of SVB fell another 68% in pre-market trading Friday morning before they were halted.
CNBC and other publications had reported earlier that SVB had been in talks to sell itself after the attempt to raise capital failed, and that larger financial institutions had been looking at the Santa Clara-based bank. Those deals apparently did not come to fruition fast enough to stave off a bank failure.
SVB is the first failure of an FDIC-insured institution this year. Its share price decline on Thursday had already prompted a broader bank stock sell-off and sent jitters through the stock market.
The bank has said its balance sheet came under pressure after its startup clients began to draw down deposits. “We are taking these actions because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses,” the bank wrote in a letter to shareholders.
In an earlier presentation to investors, SVB said client cash burn “remains about 2x higher than pre-2021 levels and has not adjusted to the slower fundraising environment,” seemingly illustrating that startups have not reversed their previous patterns of spending.
SVB connections run through Silicon Valley
SVB’s Rolodex of venture firms it does business with is a who’s who of money in the valley — with names such as Sequoia Capital, Kleiner Perkins and Accel among the most prominent.
According to data pulled from Crunchbase, the bank participated in 75 founding rounds last year — mainly involving venture debt — that totaled $5.7 billion. That included leading a $200 million venture debt round for San Jose-based Automation Anywhere. That deal number is likely low, as many private companies do not publicly divulge debt financings — but nevertheless shows how intertwined the bank has become to the tech startup ecosystem.
In 2021, SVB took part in 73 rounds that totaled $3.1 billion, per Crunchbase. Thus far this year, the bank has participated in eight announced rounds, including leading a $30 million debt round for San Francisco-based InfluxData.
Illustration: Dom Guzman
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