Investors on both sides of the Atlantic have been warning their portfolio corporations to get their money out of the troubled Silicon Valley Bank (SVB).
CNBC reported that the stock price of Silicon Valley Bank dropped 60% on Thursday, Mar. 9, after the company said it would need to raise $2.25 billion in equity from investors, including General Atlantic. On Friday morning's premarket trade, Mar. 10, shares of the business fell by a further 60%.
A Call To Pull Out Funds
Due to the partnerships it has fostered with the venture capital (VC) community over its four decades in operation, SVB has become a leading bank in the technology startup field. It is a cornerstone of the American venture capital business since it offers both standard banking services and finance for technological enterprises.
Large venture capital firms such as Founders Fund, Union Square Ventures, and Coatue Management are among the many who have recommended that their portfolio companies withdraw their money from SVB to protect themselves against the bank's possible demise.
On the condition of anonymity, entrepreneurs with accounts at SVB told CNBC that the bank's actions might be catastrophic for a company that is rapidly burning through its cash reserves.
On Thursday, San Francisco-based early-stage VC company Pear VC asked its portfolio network to move money out of SVB. Edge DB, an open-source database, and the Gusto payroll administration platform are also part of Pear's services.
According to an email sent to the company's founders by Pear's CFO Anna Nitschke, she advised them to transfer the deposits they had made at SVB to another banking platform because of the current situation.
While huge financial institutions like Citibank, JPMorgan Chase, and Bank of America are ideal for this market, opening temporary accounts with regional banks like PacWest, Mercury, or First Republic Bank may be quicker.
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Current Financial Crisis
Last week's closure of crypto-focused Silvergate Bank and pressure on Silicon Valley Bank reminded several founders of the 2008 financial crisis when banks collapsed during the mortgage crash.
SVB is struggling to finance technology due to a cold initial public offering (IPO) market and cautious VCs amid a deteriorating macroeconomic climate and increasing interest rates.
In 2020 and 2021, when the IT industry was at its peak, raising financing was significantly simpler thanks to historically low-interest rates.
Rising interest rates have caused a resetting of company values, and venture-backed businesses are experiencing the effects of the slowing VC investment market. Funding may be drying up, but businesses still need to use the money they obtained to pay their bills.
SVB is losing money on surplus capital placed in US debt securities, which have dropped in price due to the Federal Reserve's rate hikes. Thus, this is terrible news for the bank.
