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SVB’s implosion makes the future of newly started banks uncertain


When Liz Giorgi started her second business – an online platform that allows internet retailers to get high-quality photos of their goods – she thought getting a bank account would be easy. After all, she had no trouble getting credit cards, loans or checking accounts for her first venture, a production company she successfully sold after seven years.

This time was different. Her longtime bankers were nervous about working with a small Internet software startup. She tried the big national banks, to no avail. A total of 27 banks rejected her.

Then, in 2019, she found Silicon Valley Bank.

Giorgi was connected to the California bank through Techstars – a prestigious startup mentoring program. SVB representatives flew to Colorado, where the program took place, took her to lunch and proposed to her. Twenty-four hours later, Giorgi’s company, Soona, finally had a bank account.

Countless start-ups tell stories of the same treatment on the red carpet. For 40 years, SVB grew with the technology industry, becoming a fixture in the tight-knit community while serving both startups and their employees – eventually banking for some of America’s most powerful and wealthy people.

Then, a week ago, everything came crashing down. Customers ran on the bank, withdrawing $42 billion after signs of economic weakness. The next morning the government stepped in and shut it down.

Now the technology and venture community is reeling from the loss, worried that SVB’s collapse will stall America’s innovation engine. Questions are already emerging as to whether lending to small technology companies is a viable business model going forward. And startups — many of which are inherently risky gambles for banks — aren’t sure who will help them move forward.

“I’m disappointed,” Giorgi said. “We had a relationship with a bank that understood our business, and we as an industry didn’t keep our eye on the ball enough to really continue to make sure it was a secure mechanism.”

Concerns are growing across the technology industry

The meltdown at SVB amplifies broader concerns for the tech industry, which after years of meteoric growth has finally faced a major slowdown and growing skepticism — especially when it comes to its riskier ventures. Companies such as Amazon and Facebook parent Meta have cut tens of thousands of workers as they try to trim their businesses and return to previous levels of profitability. Tech giants are moving away from developing “moonshot” projects. It has become more difficult for start-ups to raise money to start and maintain their business.

Amazon founder Jeff Bezos owns The Washington Post. A spokesperson for SVB did not return a request for comment.

While the government has made it possible for start-ups and other depositors to get their money back, the elimination of SVB is a major blow amid the already worrisome climate for technology – and will further set the industry back.

Founded in 1983, the bank has specifically targeted venture capital-backed technology companies, a sector where failure is the norm. Most companies take years to start making money, and only a small handful break through and become business giants like Google and Facebook.

SVB’s willingness to take on these risks made it a staple of the Bay Area tech scene. Start-ups celebrating multi-million dollar funding rounds put their money there. Technical managers looking for a mortgage contacted the bank. And the firm also became known for providing banking services to the posh wineries where the tech clientele went on retreats and weekend getaways.

It became a ubiquitous sponsor of technology conferences, and through the startup boom that followed the 2008 financial crisis, SVB expanded across the United States and then the world, opening offices in Canada, Germany, Israel and a handful of other countries, a shining example of success and innovation which flows out of the US technology scene.

At the time of the collapse, the firm was serving more than half of venture-backed companies in the United States, according to its website. It also required many customers to bank with it solely as a condition of service, leading to even more concentration.

As the bank’s deposits increased along with the technology boom, it put huge amounts of money into long-term bonds. But in the past year, steadily rising interest rates have made venture capitalists more conservative, forcing startups to work with the money they have instead of expecting new rounds of funding in the coming months. Many draw down the cash reserves they have stored over the years, mainly in SVB.

Break down SVB’s collapse

Last week, the firm surprised its investors and depositors by saying it had sold $21 billion of its assets and would sell some of its own stock to shore up its balance sheet. The long-term bonds the bank had put so much money into – traditionally a safe haven – were now worth less than what the bank paid for them because higher interest rates meant people could now find other bonds paying higher interest elsewhere.

The same people who for years had been willing to hide the companies’ money, and their personal fortunes, at SVB, suddenly failed. Concerns rippled through group chats and social media. High-profile venture firms asked their portfolio companies to get out.

What’s left is owned by the government, which – in a dramatic move – has promised to refund deposits above the $250,000 limit insured by the Federal Deposit Insurance Corp. so that every SVB customer will be reimbursed in full.

This guarantee has stopped the immediate panic that swept through the tech world over the weekend. On Monday, most companies got access to their money, and many started withdrawing it to put it in other banks. But the long-term effect of SVB’s failure is just beginning to set in.

“The biggest loss we will feel is the social fabric that SVB provided,” said Casey Rosenthal, CEO of security software company Verica. “My investors and I will have a much more difficult time finding financial solutions such as venture loans with other bank providers who are not as technically savvy.”

Customers lined up earlier this week to withdraw their money. One venture capitalist, who spoke on condition of anonymity to keep his firm’s finances private, said he plans to take his business to Citi or Bank of America instead.

His company was among those who told their portfolio companies to withdraw their money from SVB last week, a position he acknowledged was part of the bank’s demise.

“It’s frustrating because you get one warning sign … it costs nothing to take your money somewhere else and you’re potentially risking money by leaving it in,” he said.

Politicians on both the left and the right have criticized the government’s rescue of SVB, and President Biden has taken it upon himself not to call it a “rescue package” for fear of being accused of helping wealthy bankers.

Isa Watson, CEO of New York-based social media company Squad, said her startup had an agreement with SVB to exclusively bank. Still, she wasn’t looking for alternatives before the bank drive.

“SVB was the only bank that really took us seriously in our early days before we raised venture capital,” said Watson, who started working with SVB five years ago.

Last week, Watson first began to hear that something was wrong on Wednesday night. On Thursday, it was all over social media.

Watson conferred with investors and other founders about whether to pull the company’s money out. But before she could make a final call, the government stepped in and closed the bank. She spent the weekend transferring the company’s recurring bills to her personal credit card.

“There must be an SVB replacement,” she added.

For now, it is unclear what it might be. Other Bay Area regional banks also cater to startups and tech entrepreneurs, like First Republic Bank, but none have the level of expertise and reputation that SVB had. And investors are concerned that First Republic may also be in trouble – the stock is down 82 percent since March 8.

The government is trading around what is left of SVB to potential acquirers, but new management may be skeptical of the business model that potentially left the bank in a precarious position. Start-ups themselves will be wary of putting all their eggs in one basket, likely multi-bank banks in the future.

The tech world is not perfect, and much of the criticism of it, such as the lack of funding going to female founders, is legitimate, Giorgi said. However, SVB’s collapse creates a new set of problems no one expected.

– There are clearly problems here. “I just don’t think any of us anticipated that the big problem was our bank,” Giorgi said. “That wasn’t the one we saw coming.”

Lisa Bonos contributed to this report.

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