Unease is spreading across the financial world as concerns about the stability of Silicon Valley Bank prompt prominent venture capitalists including Peter Thiel’s Founders Fund to advise startups to withdraw their money.
(Bloomberg) — Unease is spreading across the financial world as concerns about the stability of Silicon Valley Bank prompt prominent venture capitalists including Peter Thiel’s Founders Fund to advise startups to withdraw their money.
The turmoil followed a surprise announcement from Santa Clara, California-based SVB that it was issuing $2.25 billion of shares to bolster its capital position after a significant loss on its investment portfolio. The stock plunged 63% in premarket trading in New York on Friday before trading in the bank’s parent was halted with news pending. They declined 60% the day before. Its bonds posted record declines, igniting a broad selloff in bank shares around the world.
In the US, Thursday was the worst day for the KBW Bank Index since June 2020, as its members shed more than $90 billion of value. The biggest banks in Europe lost more than $40 billion from their market capitalizations on Friday.
Read More: SVB Share Rout Deepens as Worries Grow Over Lender’s Finances
Founders Fund asked its portfolio companies to move their money out of SVB, according to a person familiar with the matter who asked not to be identified discussing private information. Coatue Management, Union Square Ventures and Founder Collective also advised startups to pull cash, people with knowledge of the matter said. Canaan, another major VC firm, told firms it invested in to remove funds on an as-needed basis, according to another person.
SVB Financial Group Chief Executive Officer Greg Becker held a conference call on Thursday advising clients of SVB-owned Silicon Valley Bank to “stay calm” amid concern about the bank’s financial position, according to a person familiar with the matter.
Becker held the roughly 10-minute call with investors at about 11:30 a.m. San Francisco time. He asked the bank’s clients, including venture capital investors, to support the bank the way it has supported its customers over the past 40 years, the person said.
Representatives for Founders Fund, Coatue and Union Square Ventures declined to comment. Representatives for Silicon Valley Bank, Canaan and Founder Collective didn’t immediately respond to requests for comment.
In its note to companies, Founder Collective said: “Over the long term, we don’t believe that deposits are likely at risk, but the shorter term is hard to predict.”
Read more: One Bank Folds, Another Wobbles and Wall Street Ponders a Crisis
Garry Tan, the president and CEO of Y Combinator, warned its network of startups that solvency risk is real and implied they should consider limiting their exposure to the lender.
“Anytime you hear problems of solvency in any bank, and it can be deemed credible, you should take it seriously and prioritize the interests of your startup by not exposing yourself ,” Tan wrote in a post viewed by Bloomberg News.
A representative for Y Combinator declined to comment.
Another firm, Activant Capital, sent emails and texts to its portfolio company CEOs encouraging them to transfer their SVB balances to other lenders, and is helping some move capital to First Republic Bank, CEO Steve Sarracino said.
In an email Thursday morning signed by Mark Lau, head of Silicon Valley Bank’s venture practice, SVB said it had heard from many of its clients over the past 24 hours regarding questions about the company’s 8-K filing on Wednesday, according to the contents of the email about the conference call reviewed by Bloomberg.
Becker’s call was reported earlier by the Information.
“This is a classic bank run, and when the bank run starts you don’t want to be the last guy there,” Ava Labs President John Wu said in an interview with Bloomberg Television. Wu said that his company had “already diversified” away from its reliance on Silicon Valley Bank.
Read More: SVB Drops Most on Record as Startup Clients Face Cash Crunch
A startup CEO who asked not to be identified said that his firm tried unsuccessfully throughout Thursday to withdraw millions of dollars from Silicon Valley Bank. Several other clients of the bank told Bloomberg that they were able to take out cash on Thursday without significant issues, though at one point during the day one of them couldn’t access the SVB website.
Some VCs said they were standing by the bank. “It is truly unfortunate that several GPs and companies are making a tough situation for SVB worse by pressing the panic button,” said G Squared founder Larry Aschebrook. “SVB has supported entrepreneurs and GPs at all stages of their businesses and that partnership should run both ways.”
One prominent investor, Mark Suster, warned companies against overreacting to news about the bank. “I believe their CEO when he says they are solvent,” Suster wrote.
Eileen Burbidge, founding partner at London-based Passion Capital, said she had been fielding calls from panicked founders and that it was a reminder for startups to implement a “good treasury policy,” with accounts at multiple banks. Shifting money out of SVB is, she said, “a very low-cost way to diversify against that risk.”
An email thread of more than 1,000 founders from Andreessen Horowitz was abuzz with the news Thursday, with many encouraging each other to pull cash from the bank. At one point on the thread, General Partner David George weighed in. “Hi all,” he wrote in a post reviewed by Bloomberg. “We know you have questions about how to handle the SVB situation. We encourage you to pick up the phone and call your GP.”
Dan Scheinman, an investor who has backed companies including Zoom Video Communications Inc., said he fielded calls Thursday from two early-stage companies in his portfolio about SVB.
“What do we know about banks you would switch to? Are they in better or worse shape?” he said he advised. “It is a pain to switch, but it is more of a pain if the bank fails.”
–With assistance from Lizette Chapman, Sarah McBride, Ed Ludlow and Jenny Surane.
(Updates with trading halted in second paragraph.)
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