Silicon Valley’s clubby world of investors and venture capital entrepreneurs went into a panic on Thursday amid fast-spreading reports of financial trouble at one of the startup industry’s biggest banks.
Silicon Valley Bank — one of the most prolific lenders and banking institutions in the private market ecosystem — announced a day earlier that it was selling securities and looking to raise billions in a public stock sale to cover significant balance sheet losses or. Shares of Silicon Valley Bank tumbled about 60 percent in regular trading on Thursday as the bank’s technology clients struggled to figure out whether to withdraw their deposits, sparking concerns about a run of old fashioned bank.
With six venture capital investors they talked wealthmost of whom say they spent all day Thursday on the phone with founders, reassuring them, sifting through legal agreements or advising them where to park their money.
“I talked to easily 70 of them today,” said one venture investor, who asked to remain anonymous. wealth. “It’s a massive shitshow. Silicon Valley Bank is like a top 20 bank. It’s the leader in banking technology, so I don’t know how that ends up, but it doesn’t smell good right now and there’s a lot of panic.”
Another VC, who attended an investor conference on Thursday, said “all the VCs’ phones are ringing off the hook.” The investor said the founders of the portfolio companies are cashing out and their advice is to put “6-12 months of burning cash somewhere safer” in case the bank goes into insolvency.
SVB officials scrambled to contain the crisis, telling venture firms “SVB is well capitalized” and “has a high-quality liquid balance sheet,” according to an email seen by wealth. CEO Greg Becker called for calm during a Zoom call with venture firms Thursday afternoon, according to tech news site The Information. “We have supported you and your startups for 30 years. Now we’re asking you not to panic,” Becker said. In a filing with the SEC on Wednesday, Silicon Valley Bank said it still has about $180 billion in available cash.
But despite the bank’s assurances, signs of trouble were spreading. Two sources confirmed that wealth that they were unable to connect to the SVB website, adding that they hear others are having problems as well. According to The Information, at least four SVB customers have been informed that their bank transfers may be delayed.
SVB touches every corner of private markets. The 40-year-old bank estimated it has relationships with more than 50% of all US venture capital-backed companies – and is a predominant lender to both venture capital and private equity firms – with funds of venture capital or private capital. grew about 56% of its global banking portfolio in 2022, according to the company’s 2022 annual report. The bank also has a private wealth management arm that serves wealthy entrepreneurs in the startup industry.
If Silicon Valley Bank were to go into insolvency, it could freeze the entire venture and private market ecosystem, limiting firms’ access to lines of credit and freezing trade execution. Founders who have just raised millions in capital may not have access to that capital for some time.
“If those accounts are frozen, the deals can’t be fulfilled, the software can’t be paid for – those kinds of delays, even a few weeks, can be really catastrophic for business,” says one venture investor, adding: ” I don’t think we’re actually losing everything, but it could be frozen for quite some time, which is essentially the same thing,” says one venture investor.
A spokeswoman for SVB did not respond to requests for comment.
Amidst the chaos, some VCs chided their counterparts for fueling the panic, which may lead to a self-fulfilling prophecy.
Erica Brescia, managing director at Redpoint Ventures, said wealth in a private Twitter message that he believed “the current panic is being fueled by the subset of VCs trying to ‘clean’ out of SVB. This causes more panic and is entirely fabricated. If we all stay calm and don’t fuel the fire, we’ll all come out a better place. The VC community is not that big. If enough of us talk to each other and work to calm things down, everyone will be better off.”
Meanwhile, Derek Flanzraich, founder and CEO of wellness credit card startup Ness, which banks with SVB, said wealth in a private message that “they are taking a less alarmist approach, despite receiving some emails from investors. We’re diversifying where we keep our cash,” noting that it’s a credit card company and so they’ve moved some money to their sponsor bank. “We’re confident that SVB isn’t going anywhere, and they’ve been great partners for us so far – plus it means a lot to the ecosystem as a whole.”
But many founders seem to be fleeing the bank altogether, moving their capital to banks like Mercury or First Republic, and some leave only $250,000 in balances at Silicon Valley Bank — because that’s what’s covered by FDIC insurance, he says an investor.
Flanzraich said they withdrew some money from SVB on Thursday and plan to withdraw more on Friday.
This week’s events have some venture capitalists recalling the chaos of the 2008 financial crisis: “For those who didn’t understand what 2008 was like, this is a very small version of it, but it is,” an investor of risk whose fund and whose portfolio companies use SVB, said wealth, describing “sheer panic”. The investor speculated that “I don’t think this will be an independent company until next week. Unless there’s something material that isn’t General Atlantic investing $500 million, I think there’s an extraordinarily low probability, not zero of course, that these accounts won’t end up in safer, deeper hands: JP Morgan, Bank of America, Wells Fargo.” Another venture capitalist speculated that “SVB won’t go down,” adding a reference to 2008: “It can’t — it’s like, too big to fail.”
The investor whose fund banked with SVB estimated that over half of their B-sized portfolio companies and above have venture debt with SVB as well as deposits. They said they thought the panic was overblown, but “once you say, ‘Please don’t panic,’ you’ve lost the plot.” Said the investor wealth they are not sending mass communications to their founders starting early Thursday afternoon because drawing attention to it “only further accelerates” bank-run psychology.
This story was originally featured on Fortune.com
More from Fortune: