In this photo illustration of the TradingView stock chart of SVB Financial Group displayed on a smartphone with the SVB Financial Group logo in the background.
Igor Golovniov | Lightrocket | Getty Images
Venture capital firms on both sides of the Atlantic have urged their portfolio companies to move money away from a embattled lender Silicon Valley Bankdeepening fears of a run on the tech-focused bank.
Silicon Valley Bank shares fell 60% on Thursday after revealing it needed to shore up its capital with a $2.25 billion raise from investors including General Atlantic. The company’s stock fell another 60% in premarket trading on Friday.
SVB is a major technology startup bank that has developed relationships with the VC community over its four decades of existence. Providing traditional banking services while financing technology projects, it is considered a backbone of the US venture capital industry
Many VC funds, e.g major players such as Founders Fund, Union Square Ventures and Coatue Management, have advised companies in their portfolios to move their funds from SVB to avoid the risk of being caught up in the bank’s potential failure. Having money frozen at SVB could be fatal for a cash-burning startup, according to founders with accounts at the bank who spoke to CNBC on condition of anonymity.
Pear VC, an early-stage VC firm based in San Francisco, urged its portfolio network to withdraw money from SVB on Thursday. Pear’s portfolio includes the open source database Edge DB and the payroll processing platform Gusto. A Gusto spokesperson said the company “does not use Silicon Valley Bank to fund customer payroll services and operations” and therefore customers are not affected.
“In light of the situation with Silicon Valley Bank that we’re sure you all see developing, we wanted to reach out and recommend that you move any cash deposits you may have with SVB to another banking platform,” said Anna Nitschke, Pear’s chief financial officer, in an email to the founders obtained by CNBC.
“In this market, a major money central bank (think Citi Bank, JP Morgan Chase, Bank of America) is best suited, but in the interest of time, you may be able to open interim accounts more quickly with smaller banking platforms such as PacWest , Mercury or First Republic Bank .”
Pear was not immediately available for comment when contacted by CNBC.
SVB did not immediately respond to a question from CNBC about whether it had enough assets on hand to process withdrawals from start-ups.
The dismantling of crypto-centric Silvergate Bank and pressure on Silicon Valley Bank this week reminded some founders of the 2008 financial crisis, when banks collapsed under the mortgage crisis.
SVB is grappling with a difficult technology financing environment as the IPO market remains cold and venture capital companies remain cautious against the backdrop of a weaker macroeconomic situation and rising interest rates.
During the tech heyday of 2020 and 2021, ultra-low interest rates meant it was much easier for startups to raise capital.
As interest rates have risen, corporate valuations have seen something of a recovery, and venture-backed companies are feeling the pinch as the VC funding market experiences a slowdown. Even as funding rounds have slowed, startups have had to continue burning money raised from previous rounds to cover their overhead costs.
That is bad news for SVB, as it means companies have had to drain deposits from the bank at a time when it is losing money on excess liquidity investments in US Treasuries, which have now fallen in price following the Fed’s rate hikes.
Hoxton Ventures, a London-based VC firm, advises founders to withdraw two months of “burn,” or risk capital, that they would use to fund overhead, from SVB.
In a note to founders on Thursday, Hussein Kanji, Hoxton’s founding partner, said: “We have seen some funds convey a view that they remain confident in SVB. We see other funds encouraging companies to withdraw their funds from SVB. It remains to be seen see how it will all turn out.
“If the self-fulfilling prophecy occurs, the risks to you are asymmetrical.”
Speaking separately to CNBC, Kanji said: “The big danger for startups is that their accounts will be frozen while the mess is sorted out.”
Kanji believes that SVB can either be rescued by the US Federal Reserve or acquired by another company.
The company has hired advisors to explore a potential sale after the bank’s attempts to raise capital failed, sources told CNBC’s David Faber Friday.