Silicon Valley Funding News - Week of March 13, 2023. Silicon Valley Bank Collapse

SVB was not just another bank around the corner. SVB was the trusted stalwart of Silicon Valley. Venture capitalists and startup founders alike trusted them as they served as the custodian, investor, lender, and limited partner of many venture capital funds and startups.

What happened?
The genesis of SVB's collapse lies in a rising interest rate environment. As higher interest rates caused the market for IPO to shut down for many startups and made private fundraising more costly, some of SVB's clients started pulling out their money. To fund the redemptions, SVB sold a $21 billion bond portfolio consisting mostly of U.S. Treasuries on March 8, booked a $1.8 billion after-tax loss on the sales of investments, and said it would sell $2.25 billion in common equity and preferred convertible stock to fill its funding hole.

Investors got spooked when they heard the news, leading to venture capitalist firms like Founders Fund, Coatue Management, and Union Square Ventures telling their startups to pull their money out of SVB.

Who Suffers from this?
According to the SVB website, potentially 50% of the US VC-backed startups and 55% of the US VC-banked tech and health company listing in 2022 bank with SVB. As of December 31, 2022, Silicon Valley Bank had approximately $209 billion in total assets and about $175.4 billion in total deposits from 37,466 deposit customers, of which $152 billion were reportedly uninsured (i.e., over the $250,000 FDIC insurance threshold) and only $4.8 billion (2.7%) were fully insured.

Unfortunately, some of the biggest private (Rippling) and public tech companies (Roku, Sofi, Roblox, Rocket Labs) and best funds in Silicon Valley bank with SVB. You can read more about their customer profile by reading their mid-quarter update published on March 8.

Who Benefits from this?
JPMorgan Chase, Morgan Stanley, First Republic, and Brex are the direct beneficiaries of SVB’s bank run. Brex received billions of dollars in deposits from Silicon Valley Bank customers in one day alone on March 9.

What Will Happen Next?
All depositors will have full access to their insured deposits on Monday, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors. Unfortunately, thousands of startups will not be able to make payroll as many of them put 100% of their funds in SVB. For many startups, $250K of FDIC insurance is just NOT enough, and they may need to raise emergency funding. For venture capital funds, many of them will lose their called capital from their limited partners. This will greatly disrupt the funding environment for the next 3-6 months.

The SVB collapse will have a lasting ripple effect on the venture capital industry. Opening a bank account for a startup is already really hard, and now founders need to spread their risk by opening multiple bank accounts. Pre-seed and seed companies often do not have a CFO for the first few years of their operations. This is going to add another level of scrutiny for startup founders. The same rule will also apply for venture funds, and many of them will need to stop capital calls, open new bank accounts, and save their portfolio startups that bank with SVB.

This week a total of 11 startups raised $213.6M in funding, 2 M&As:

• $125.1M goes to 4 Enterprise startups
• $31.5M goes to 2 FinTech startups
• $10M goes to 1 HR Tech startup
• $6M goes to 1 Travel startup
• $21M goes to 1 Gaming startup
• $6M goes to 1 Healthcare startup
• $14M goes to 1 Renewable Energy startup