Silicon Valley Bank’s crisis is due to the challenges faced by its clients, though the problems could now get worse.
Silicon Valley Bank has long been considered the lifeblood for tech startups, providing traditional banking services while funding projects and companies deemed too risky for traditional lenders. Billions of dollars in venture capital flow into and out of the bank’s coffers.
But the 40-year-old firm’s intimate ties to technology leave it particularly sensitive to the industry’s boom-and-bust cycles, and on Thursday those risks became abundantly clear.
SVB was forced into a fire sale of its securities, unloading $21 billion worth its holdings at a $1.8 billion loss, while also raising $500 million from venture firm General Atlantic, according to a financial update late Wednesday. After its stock soared 75% in the 2021 market rally, SVB lost two-thirds of its value last year and then plummeted another 60% during regular trading on Thursday.
For the Silicon Valley region, the troubles land at a particularly difficult time. Venture capital deal activity sank over 30% last year to $238 billion, according to PitchBook. While that’s still a historically high number, the dearth of IPOs and continuing drawdown in valuations among once highfliers suggests that there’s much more pain to come in 2023.
As a large regulated bank, SVB has been viewed as a stabilizing force. But its latest financial maneuvers are raising alarm bells among the firm’s client base.
„Psychologically it’s a blow because everyone realizes how fragile things can be,“ said Scott Orn, operating chief at Kruze Consulting, which helps startups with tax, accounting and HR services.
Orn called SVB a „crown jewel of Silicon Valley“ and a „strong franchise“ that he expects to survive this difficult period and even potentially get acquired by a bigger bank. For his customers, which number in the hundreds, a pullback by SVB would likely make it more expensive to borrow money.
