Panic Sweeps Start-Up Industry as Investors Urge Portfolio Companies to Withdraw Money from Silicon Valley Bank
Shares in SVB Financial Group (NASDAQ:SIVB), the parent company of Silicon Valley Bank, plummeted 60% on Thursday, followed by a further 21% drop in after-hours trading. This was after it announced an emergency $2.25 billion capital raise to cover expected losses. The losses have been triggered by a sharp run on its deposit base by clients who are running out of money.
SVB Financial Group Chief Executive Officer Greg Becker held a conference call on Thursday advising clients of SVB-owned Silicon Valley Bank to “stay calm amid concern about the bank’s financial position, according to a person familiar with the matter.
The Bank stated that it was doing this as it expects  continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses.
Concerns about the financial stability of Silicon Valley Bank were raised among tech venture capitalists and entrepreneurs due to the events. Advice from some prominent venture capital firms resulted in their portfolio companies withdrawing their funds, creating the potential for a bank run. If things were to take a turn for the worse, the bank may not have enough money to run its operations.
People familiar with the situation have reported that Founders Fund, the venture capital fund co-founded by Peter Thiel, has recommended that companies withdraw their funds from Silicon Valley Bank due to worries about its financial situation.
On Wednesday, Moody's lowered SVB Financial's credit ratings, citing their opinion that the market environment is unlikely to become conducive to SVB materially improving their profitability, funding, and liquidity. Standard & Poor's (S&P) decreased their rating of Silicon Valley Bank (SVB) to BBB- from BBB, making it one notch above speculative
Futures for the Dow Jones Industrial Average dropped 17 points, amounting to a 0.05% decrease. The S&P 500 and Nasdaq 100 futures both decreased, with the former dropping by 0.06% and the latter by 0
On Thursday, fear and worry spread through the start-up world as some venture capitalists advised the businesses they had invested in to transfer their funds away from Silicon Valley Bank due to worries about the bank's economic soundness.
At Silvergate, the problem was a run on deposits that began last year, when clients – cryptocurrency ventures – withdrew cash to weather the collapse of the FTX digital-asset exchange.
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