SVB’s implosion leaves the future of banking start-ups uncertain


When Liz Giorgi started her second business — an online platform that lets Internet retailers 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 manufacturing company she successfully sold after seven years.

This time was different. Her longtime bankers were nervous about working with a small Internet software start-up. 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 connected with the Californian bank through Techstars – a prestigious start-up mentoring program. SVB representatives flew to Colorado, where the program was taking 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 tech industry and became a staple of the tight-knit community, serving both startups and their employees — eventually becoming the go-to bank for some of America’s most powerful and wealthy people.

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

Now the tech and venture community is reeling from the loss, worried that SVB’s collapse will stall America’s innovation engine. Questions are already emerging about 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 tech industry

The meltdown at SVB reinforces broader concerns about the tech industry, which after years of explosive growth has finally faced a major slowdown and growing skepticism — especially when it comes to its riskier companies. 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 businesses.

Amazon founder Jeff Bezos owns The Washington Post. A spokesman 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 funds back, the elimination of SVB is a major blow amid the already troubling climate for technology – and will set the industry back even further.

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 turning a profit, and only a small handful break through and become business titans like Google and Facebook.

SVB’s willingness to take these risks made it a staple of the Bay Area tech scene. Startups celebrating multi-million dollar funding rounds put the money there. Tech executives looking for a mortgage approached the bank. And the firm also became known for providing banking services to the posh wineries where its tech clientele went for 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 the success and the innovation flowing out of America’s tech scene.

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

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

Breakdown of 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 that the bank had put so much money into – traditionally safe – were now worth less than the bank paid for them, because higher interest rates meant that people could now find other bonds that paid higher interest elsewhere.

The same people who for years had been willing to save their companies’ money and their personal fortunes with SVB suddenly ran away. 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 every SVB customer will be fully reimbursed.

That assurance has dampened the immediate panic that swept through the tech world over the weekend. On Monday, most businesses were able to access their money, and many began taking it out to put it in other banks. But the long-term impact 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 firm Verica. “My investors and I will have a much harder time finding financial solutions like venture debt loans with other bank providers who are not as tech-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 that told its portfolio companies to withdraw their funds from SVB last week, a position he acknowledged was part of the bank’s demise.

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

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

Isa Watson, CEO of New York-based social media company Squad, said her start-up had a pact with SVB to exclusively bank. Still, she didn’t look for alternatives until the bank run.

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

Last week, Watson didn’t start hearing anything was wrong until Wednesday night. On Thursday, it was all over social media.

Watson conferred with investors and other founders about whether to pull out her company’s money. But before she could make one last 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 will have to be an SVB replacement,” she added.

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

The government is shopping what’s left of SVB to potential buyers, but new management may be skeptical of the business model that potentially left the bank in a precarious position. Startups themselves will be careful not to put all their eggs in one basket, likely multi-bank banks in the future.

The tech world isn’t perfect, and much of the criticism leveled at it, such as the lack of funding for female founders, is legitimate, Giorgi said. However, SVB’s collapse creates a new set of problems that no one expected.

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

Lisa Bonos contributed to this report.

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