SVB collapse spared an already muted venture deal market

Many originally thought this could have wider implications on the struggling VC ecosystem

When Silicon Valley Bank collapsed earlier this month, venture had already been navigating choppy waters for over a year as it confronted overinflated company valuations and a seemingly nonexistent exit market.

But while SVB’s failure may have a long-lasting impact on the banking and venture debt industries, it doesn’t look likely to have any lasting adverse impact on one of venture’s hardest-hit areas: deal activity.

Venture capital deal volume has been almost steadily declining since the beginning of 2022. While many investors and founders hoped for some relief in 2023, that hasn’t materialized — yet, at least. So far, January and February have continued trending down, according to Crunchbase data, with global funding in February totaling $18 billion, the lowest total since February 2020.

With deal-making in such a vulnerable state, it seemed like any market trigger could have an impact, but lawyers and VC firms told TechCrunch+ that the demise of SVB doesn’t look like it will make things any worse. It seems that any pause the news did create for investors and founders has likely already passed.

DocSend — a platform popular with founders sending out pitch decks that also tracks the data on how investors interact with the decks — found that in the weeks after SVB’s collapse, activity within the decks wasn’t severely affected. The company found that investor activity was down 7% when compared to the same week in 2022, and founder activity was down 4% compared to the same period last year.

For Justin Izzo, senior data and trends analyst at DocSend, the data showed a very different outcome than he and surely many others were expecting. “I think that the best way to describe it is a bit of an expected dip [amid SVB’s disarray] but one that hasn’t been as pronounced as I, for one, feared,” he said.

Izzo added that he thinks one factor that prevented the fallout from being worse was the timing: The fact that it happened at the end of the week and all of the depositors were made whole by Monday meant that anyone who had planned to go out fundraising the week following the crash probably felt secure enough to do so.

“Founders could go into the following week’s fundraising activity with a bit of weight off their backs,” Izzo said.

Multiple pre-seed and seed-focused investors told TechCrunch+ that they saw a dip in activity when SVB was collapsing that reversed itself quite quickly.

One fintech-focused pre-seed and seed investor, who asked to remain on background, said that early-stage companies aren’t generally as affected by macroeconomic events, and he thinks this situation is no different. Being a small company often means having the ability to be more nimble in moving funds or being reactive to what is happening.

It doesn’t look like there was a material hit to late-stage deals, either. Dane Patterson, a partner at law firm Goodwin, told TechCrunch+ that even if it did have an impact, it would be hard to tell because late-stage deals move at a glacial pace.

Companies that rely on venture debt to operate, such as capital-intensive businesses like non-bank lenders and rollup acquisition companies, might’ve been affected more directly, however, Patterson said, adding that it might be harder, or more expensive, to secure venture debt now because SVB still works through that part of the business.

“There are probably some complications to navigate, but some of the other venture debt lenders remain really active,” Patterson said. “Maybe the terms aren’t as great, but I don’t know if that is the make-or-break for a company. That’s just the reality that you might not get it on the terms you got it before.”

While it doesn’t seem like SVB’s mess will have a big effect on deals in terms of pace, it is changing how deals get done. TechCrunch+ has heard from multiple sources, including lawyers and investors, that in many current deals in progress, language is included that requests startups keep their funds in multiple banks, which is good advice for anyone, including founders. In theory, a startup wouldn’t be able to access their money if all of it was sitting in a bank experiencing a network outage or being attacked by ransomware or many other scenarios that are more common than a total bank collapse, one investor told TechCrunch+.

Patterson said that he hasn’t yet seen these terms creep into early-stage deals, but he wouldn’t be surprised if they start, considering many later-stage deals already include this type of language.

It isn’t likely that SVB’s collapse will create issues in the long term, Patterson said. Because the collapse had more to do with a challenging interest rate environment, as opposed to something venture-specific, he said he couldn’t think of any potential effects coming to the surface that haven’t already.

That should come as reassurance to startups and investors. The past year has been tough, but at least SVB’s downfall isn’t likely to make it materially tougher.