March 13, 2023
Fortune recently published an article featuring Mark Williams, Master Lecturer of Finance, discussing the events that led to Silicon Valley Bank’s seizure by federal regulators on Friday following a bank run.
Silicon Valley Bank’s closure has been called the largest institutional failure since the 2008 financial crisis. SVB is a major lender to the tech and venture capital sectors, but it hasn’t had a chief risk officer for nearly eight months. Fortune reported that SVB’s parent company, SVB Financial Group, sold $21 billion of bonds during the quarter, resulting in an after-tax loss of $1.8 billion. Those bonds yielded an average of 1.79%, well below the current 10-year Treasury yield of around 3.9%. To shore up its finances, SVB announced a $2.25 billion stock sale. However, this news caused panic among investors, resulting in employees and depositors attempting to withdraw $42 billion from SVB Thursday.
Several clients were already contacting rival banks looking to transfer large balances exceeding the FDIC insurance caps. Venture capital investors also advised startups to withdraw their money from the bank in case it failed. Prior to the collapse of the bank, SVB Financial Group’s CFO Dan Beck sold 2,000 shares of SVIB at an average price of $287.59, totaling $575,000.
“To prevent a crisis of confidence, SVB’s CEO and CFO should have relied more on an old-fashioned banking approach of diversification of its lending and deposit customers,” Williams states. “Venture capital is a highly risky business. So not only did the bank expose its asset side of the balance sheet but also its liability side.”
What impact will SVB’s downfall have on public companies? According to Wedbush analysts in a note on Sunday, there is little exposure from a public company perspective around the SVB collapse, and outside of Roku and a few other tech players with cash on hand, we don’t see any impact on their cash balances. Despite the fact that we have heard from public CFOs since Friday night across the board, the bigger and more troubling story is how this will affect the start-up and VC community in the future.