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.
Dozens of GPs are advising portfolio companies to take money out of SVB,TechCrunch learned from several sources. Founders Fund, Valor Equity, Inspired Capital and Hustle Fund are among the firms that have sent guidance to their portfolio companies.
One source forwarded an email to TechCrunch that Hustle Fund sent to all portfolio companies, in which co-founder and general partner Elizabeth Yin said that she “does not want to create panic” but did recommend First Republic Bank, Mercury Bank and Series Financial (which is one of their portfolio companies) to founders looking to spin up new bank accounts. In the memo, Yin wrote that the firm learned of other VCs encouraging portfolio companies who bank with SVB to move cash, which triggered them to send a note to startups as well.
Of firms that aren’t sending formal guidance, some are still more quietly advising top portfolio companies to rethink their capital. After all, if everyone thinks a bank run is going to happen, VCs may want to whisper to their portfolio to remove money before other portfolio companies do the same (a nod to the above irony).
One investor told TechCrunch that many VCs are advising startups to decentralize their assets across multiple banks and generally keep no more than $250,000 in SVB checking accounts. (NB: $250,000 is the maximum that is insured by the Federal Deposit Insurance Corporation, meaning that those funds would have external protection.)
For competitors, the news appears understandably welcome. Startup banking service Mercury jumped into venture debt last year in a direct swing at SVB. Arc, another competitor, said that it’s being inundated with migration requests; same with Series Financial. Precisely how many accounts move from SVB to competing entities is not clear, but as bank switching costs are not impossibly high, the amount of capital in flight could become material.
OK i am hearing from dozens of founders about what to do at SVB.
It's an all out bank run.
— Howard Lerman (@howard) March 9, 2023
https://twitter.com/loganbartlett/status/1633928604039118849
Public-market investors seem equally wary; they have bid the company down by more than half today.
Silicon Valley Bank did not immediately respond to TechCrunch’s request for comment.
If you have a juicy tip or lead about happenings in the venture world, you can reach Natasha Mascarenhas on Twitter @nmasc_ or on Signal at +1 925 271 0912. Anonymity requests will be respected.
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