Founders are still shaking off the dust a week after Silicon Valley Bank’s collapse. Rumors are swirling about who might be looking to buy the beleaguered bank’s assets.
Some of the top firms urged their portfolio managers to diversify their assets as the bank was collapsing, and are continuing to do so, even though regulators have stepped in to guarantee that all depositors would get access to their stored cash.
While diversifying assets feels obvious in retrospect, actually following that bit of advice is harder than it seems.
Nothing is guaranteed, except when it is, for now, right?
Stability is not yet a standard. First Republic Bank and other regional competitors have seen stock volatility since March 9, when SVB crashed. On Monday, shares of First Republic fell so sharply that the company’s trading had to be paused due to volatility.
The bank has since recovered slightly, but MarketWatch reported that S&P Global Ratings downgraded its issuer credit rating on First Republic Bank by four notches, or put more tersely, “junk.” FRB is now exploring strategic options including a sale. When TC+ asked the bank directly about one specific possible buyer, a spokesperson replied: “Thanks for asking. First Republic has no comment.”
The 166-year-old Credit Suisse’s stock price dropped on Wednesday, and the Swiss Central Bank had to step in to say it will backstop the institution if needed. Credit Suisse took up the offer, asking to borrow around $53 billion to help shore up confidence with investors.
Fear in the wake of the crash appears to be spreading, despite the best efforts of Silicon Valley Bank’s new CEO, Tim Mayopolous, who is trying to persuade existing clients to return deposits to the institution, saying in a private call that it is the safest place to store money. A number of prominent venture capitalists are also trying to offer votes of confidence: General Catalyst, Bessemer, Greylock, Lightspeed, Lux and over 650 other venture and private equity firms signed a petition recommending that portfolio companies keep or give back half of their total capital with the bank.
GC CEO and managing partner Hemant Taneja, who started the petition, told TechCrunch+ that the movement “is a way to signal a show of confidence and also encourage founders to diversify across at least two banks.”
“It’s important to return confidence and stability to the ecosystem so technology innovation and growth can continue,” Taneja said. Brex, which sources say got billions of dollars in deposits from SVB clients, put $200 million of its own cash back in the bank to also offer a signal of stability and diversification.
Founders are still fatigued; one who had money in SVB — but then moved it to FRB — even joked to me, “brb, storing all my money in gold.” So, what’s a plan that sticks?
Two is better than one
Founders are being told to put their money in FDIC-insured accounts and to use more than one bank, so as not to repeat the events of the last week.
Using more than one bank in and of itself could be revolutionary for some startups. Series CEO Brexton Pham said on a recent Exchange podcast episode that this is the first time startups have “remotely considered opening up multiple bank accounts with multiple different banks.”
But not just any banks: Some sources told me that they’re telling founders to bank with at least one of the big four banks (Wells Fargo, Bank of America, etc.) and one more specialized bank, whether it’s a regional or startup services-focused institution.
Sarah Kunst, the founder and managing partner of Cleo Capital, brings it back to financial education and “treasury management best practices” that chief executives need to embody. “Generally tech companies don’t have CFOs or strong capital controls until they’ve raised millions and are close to IPO, but now that will be a conversation much earlier with sweep accounts, ICS and better treasury management becoming standard,” she told TechCrunch+. “That’s not a bad thing.”
She sees SVB’s recovery as an uphill battle, especially for startups that jumped ship over the past few days. “I suspect most startups have had enough of bank switching for a while and will stay where they’ve landed until they need venture debt or another service more specific to SVB.”
