SVB races to prevent bank run as funds advise pulling cash

BLOOMBERG

Panic is spreading across the financial world as concerns about the financial stability of Silicon Valley Bank (SVB) prompt prominent venture capitalists including Peter Thiel’s Founders Fund to advise startups to withdraw their money.
The turmoil followed a surprise announcement from Santa Clara, California-based SVB that it was issuing $2.25 billion of shares to bolster its capital position after a significant loss on its investment portfolio. The stock plunged 44% in premarket trading before exchanges opened in New York, set to extend its 60% decline. Bonds had posted record declines, igniting a broad selloff in US bank shares that also spread to Asia and Europe.
In the US, the KBW Bank Index had its worst day since June 2020, as its members shed more than $90 billion of value. In Europe, the biggest banks lost more than $40 billion from their market caps on Friday.
Founders Fund asked its portfolio companies to move their money out of SVB, according to a person familiar with the matter who asked not to be identified discussing private information. Coatue Management, Union Square Ventures and Founder Collective also advised startups to pull cash, people with knowledge of the matter said. Canaan, another major VC firm, told its portfolio companies to remove funds on an as-needed basis, according to another person.
SVB Financial Group Chief Executive Officer Greg Becker held a conference call advising clients of SVB-owned Silicon Valley Bank to “stay calm” amid concern about the bank’s financial position, according to a person familiar with the matter.
Becker held the roughly 10-minute call with investors at about 11:30 am San Francisco time. He asked the bank’s clients, including venture capital investors, to support the bank the way it has supported its customers over the past 40 years, the person said.
Representatives for Founders Fund, Coatue and Union Square Ventures declined to comment. Representatives for Silicon Valley Bank, Canaan and Founder Collective didn’t immediately respond to requests for comment.
In its note to companies, Founder Collective said: “Over the long term, we don’t believe that deposits are likely at risk, but the shorter term is hard to predict.” Worries surrounding the lender ricocheted around Silicon Valley and Wall Street, with a gauge of US bank stocks plunging by the most since June 2020. There is “a good deal of panic,” said Jenny Fielding, managing partner at The Fund, which invests in early stage companies. Fielding said she is watching the situation with the bank closely and has not yet advised her portfolio companies on how to proceed.
Garry Tan, the president and CEO of Y Combinator, warned its network of startups that solvency risk is real and implied they should consider limiting their exposure to the lender. “We have no specific knowledge of what’s happening at SVB,” Tan wrote in a post viewed by Bloomberg News. “But anytime you hear problems of solvency in any bank, and it can be deemed credible, you should take it seriously and prioritise the interests of your startup by not exposing yourself to more than $250K of exposure there.” He added, “Your startup dies when you run out of money for whatever reason.” A representative for Y Combinator declined to comment.
Venture firm Tribe Capital has also advised its portfolio companies to move some, if not all, of their balances from SVB. “What’s important to understand is that banks all have leverage and they use deposits, so almost by definition any bank with a business model is dead if everyone moves,” Tribe co-founder Arjun Sethi told portfolio companies in a communication reviewed by Bloomberg. Another firm, Activant Capital, sent emails and texts to its portfolio company CEOs encouraging them to transfer their SVB balances to other lenders, and is helping some move capital to First Republic Bank, CEO Steve Sarracino said.
Many startup founders and executives worried how a collapse of SVB would affect Silicon Valley’s infrastructure.