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.[0] This was after it announced an emergency $2.25 billion capital raise to cover expected losses.[1] The losses have been triggered by a sharp run on its deposit base by clients who are running out of money.[1]
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[2] amid concern about the bank’s financial position, according to a person familiar with the matter.[0]
The Bank stated that it was doing this as it expects [2] continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses.[2]
Concerns about the financial stability of Silicon Valley Bank were raised among tech venture capitalists and entrepreneurs due to the events.[4] Advice from some prominent venture capital firms resulted in their portfolio companies withdrawing their funds, creating the potential for a bank run.[4] If things were to take a turn for the worse, the bank may not have enough money to run its operations.[4]
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.[5]
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.[6] Standard & Poor's (S&P) decreased their rating of Silicon Valley Bank (SVB) to BBB- from BBB, making it one notch above speculative[0]
Futures for the Dow Jones Industrial Average dropped 17 points, amounting to a 0.05% decrease.[7] The S&P 500 and Nasdaq 100 futures both decreased, with the former dropping by 0.06% and the latter by 0[7]
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.[6]
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.[8]
0. “Explainer -Silicon Valley Bank crisis: What led to stock crash, what lies ahead? | Mint” Mint, 10 Mar. 2023, https://www.livemint.com/news/world/explainer-silicon-valley-bank-crisis-what-led-to-stock-crash-what-lies-ahead-11678419807090.html
1. “Silicon Valley Bank's ominous wobble casts long shadow ahead of jobs report By Investing.com” Investing.com, 10 Mar. 2023, https://www.investing.com/news/stock-market-news/silicon-valley-banks–ominous-wobble-casts-long-shadow-ahead-of-jobs-report-3027204
2. “Silicon Valley Bank's stock plunges 60% | San Francisco News | sfexaminer.com” San Francisco Examiner, 9 Mar. 2023, https://www.sfexaminer.com/news/silicon-valley-bank-stock-plunges-60-percent/article_8aa3c52e-bec1-11ed-a796-7f91fcb2759e.html
3. “Hot Stocks: SIVB plunges 60%, leads banks lower; SI crashes; ASAN surges on earnings news” Seeking Alpha, 9 Mar. 2023, https://seekingalpha.com/news/3946275-hot-stocks-sivb-plunges-60-leads-banks-lower-si-crashes-asan-surges-on-earnings-news
4. “Ackman calls on US government to consider Silicon Valley Bank bailout” Business Insider, 10 Mar. 2023, https://www.businessinsider.com/silicon-valley-bank-bill-ackman-billionaire-government-bailout-svb-2023-3
5. “Peter Thiel's Founders Fund Advises Companies to Withdraw Money From SVB” Bloomberg, 9 Mar. 2023, https://www.bloomberg.com/news/articles/2023-03-09/founders-fund-advises-companies-to-withdraw-money-from-svb
6. “Silicon Valley Bank's Financial Stability Worries Investors” The New York Times, 10 Mar. 2023, https://www.nytimes.com/2023/03/09/business/silicon-valley-bank-investors-worry.html
7. “S&P 500 closes 1.8% lower as bank stocks succumb to pressure, Dow sheds more than 500 points: Live updates” CNBC, 9 Mar. 2023, https://www.cnbc.com/2023/03/08/stock-market-today-live-updates.html
8. “Silicon Valley Bank Urges Clients To “Stay Calm” After 60% Stock Tumble” NDTV, 10 Mar. 2023, https://www.ndtv.com/world-news/silvergate-silicon-valley-bank-stocks-on-wall-street-take-a-beating-after-one-bank-folds-another-wobbles-3848320
