After the parent company of Silicon Valley Bank, SVB Financial sent shockwaves through the market Thursday by announcing that it was seeking north of $2 billion in funding to shore up liquidity issues and triggering a run on the bank, trading has been suspended, with CNBC is reporting that the institution is now seeking a buyer.
Shares of the firm plummeted 60% on Thursday, with Friday’s premarket session seeing the value drop to 63%.
In a surprise move, and just before the close of the trading day on Wednesday, Silicon Valley Bank issued a press release stating that they planned to sell $1.25 billion of its common stock to investors, $500 million of depositary shares, and $500 million of its common stock in a separate transaction to General Atlantic.
Also noted in the release: “SVB completed the sale of substantially of its available for sale securities portfolio. SVB sold approximately $21 billion of securities, which will result in an after-tax loss of approximately $1.8 billion in the first quarter of 2023.”
To say that the industry was spooked would be to put it mildly.
Following a downgrade from Moody's, Bloomberg was the first to report that Peter Thiel’s Founders Fund was advising companies to pull their money out of SVB due to financial stability concerns, with others soon following suit.
Tech.eu reached out to a number of European ecosystem players to comment:
“We have seen some funds passing on a view that they remain confident in SVB. We are seeing other funds encouraging companies to withdraw their funds from SVB. It remains to be seen how this will all play out.” - Hussein Kanji, Hoxton Ventures.
Kanji later added, "The big danger for startups is that their accounts will be frozen while the mess is being sorted. We've advised our portfolio to take 1-2 months of burn out."
"The problem is it’s in a company’s incentive to diversify. Even if there’s a small chance things go wrong, that outcome could be catastrophic for funds and companies banking at SVB. The ‘rational’ thing on a company level is to move your money, but if everyone acts 'rationally, that creates an overreaction at the macro level. In the long term, the arc of early-stage VC is long, so it’s unlikely to affect outcomes 7 to 10 years down the line. Still, there will be a restructuring of the market with the pace of deployment and a doubling down on cash management, unit economics and profitable growth." - Reem Mobassaleh Wyndham, Founding Partner at Pact.
"Silicon Valley Bank, both in the UK and further afield, is one of the tech ecosystem's most engaged and supportive stakeholders. While it's always good practice to diversify your financial holdings, it's equally advisable to maintain a level head (even more so when the herd's running amok in the china shop with little idea of what's going on). If you need to, take advice before doing anything rash - and react because you need to, not because the herd is. SVB has supported the ecosystem well for years; we should do the same." - Wil Benton, Co-Founder & Director of Metta and Angel Investor.
"We're being cautious but we're not panicking. There's a lot of noise at the moment and not a lot of facts. We've heard that US investors are advising to take money out, but we've also heard that UK money is ring-fenced, so it's safe - although we've had no written confirmation yet. We've diversified our money into our banks in the UK and our VCs have been super supportive in helping us work through this with SVB." - Yonder
On February 14th of this year, SVB was named to Forbes' America's Best Banks for the fifth consecutive year.