Some venture capital firms, including some of the biggest names in the game, are advising their portfolio companies to remove money out of Silicon Valley Bank after the storied bank announced this morning that it intended to sell shares in pursuit of more capital.
A number of investors fear a bank run — meaning that enough startups will withdraw their capital at SVB, a situation in which the financial institution could wind up upside-down in terms of deposits versus demand for those funds. (Bank runs are often ironic in that they can become self-fulfilling prophecies.)
To give you a sense of what’s on the table, founders who raise millions of dollars in venture capital financings often park their capital in an SVB account. To have any semblance of that precious capital under threat could set off a domino effect more based on fear than reality. Well-known venture investor Mark Suster spoke out on Twitter in defense of the bank, saying that he believes its CEO “when he says they are solvent and not in violation of any banking ratios [and that their] goal was to raise [and] strengthen [their] balance sheet.” Others have also spoken up to support SVB, including Rob Go from NextView and Bryce Roberts.
For some time, SVB has enjoyed significant market share in the startup world, offering both banking and venture lending services to upstart tech companies and their backers, and its reputation appears to be suffering in real time. One founder told TechCrunch that they had heard from two different venture investors at two different firms today to pull their capital from the bank. That advice, it seems, is not unique.