Nearly two weeks after the sudden failure of Silicon Valley Bank (SVB), Bay Area investors and startup founders are anxiously waiting to see who—if anyone—will step in to buy what remains of the shuttered bank.
Tim Mayopoulos, who was appointed CEO of SVB’s successor entity, called Silicon Valley Bridge Bank, assured clients that the institution is still open for business. But given SVB’s idiosyncrasies as a go-to bank for venture capitalists and high-risk startups, an eligible buyer has been slow to materialize.
“We’re still waiting to see who is going to win the bids. Is the new bank going to be doing something similar?” asked Haydar Haba, managing partner at Andra Capital. “The bigger guys don’t want this kind of risk on their balance sheet.”
It’s unclear who will fill the void left by SVB, which was deeply embedded in Bay Area’s tech sector for decades, providing banking services to venture capitalists and startups and issuing venture debt to budding companies. The bank also frequently provided personal mortgages to tech founders.
The Federal Deposit Insurance Corporation broke up the bidding process for Silicon Valley Bridge Bank and a subsidiary called Silicon Valley Private Bank, extending the bidding process until Friday and Wednesday evenings, respectively. Prospective buyers can bid for each separately, or for both; on Tuesday, Bloomberg reported that First Citizens Bank, a North Carolina-based lender, submitted a bid for all of the failed bank.
In the meantime, startup founders may have to work harder to find financial partners willing to work with companies that often go years without profits as their products find their way to customers, said Andrea Schulz, an audit partner at Grant Thornton accounting network who frequently works with tech startups.
“These neo-banks that don’t necessarily have a retail footprint—they’ll come in and strike up a relationship for more operational banking needs,” Schulz said. “In general, it’s going to take some time for things to stabilize.”
A spokesperson for Mercury, a financial technology startup that also offers banking services, confirmed that it’s seen an uptick in new customers since SVB’s collapse. Other startup founders have migrated to larger banks or chosen to keep their funds with Silicon Valley Bridge Bank, at least for now.
A survey of 870 startup founders by the venture firm NFX found that companies choosing to park some funds with major banks roughly doubled from 31% to 57% since SVB’s collapse. Smaller financial technology firms such as Mercury and Brex gained about 4% market share, according to the survey.
“I'm hearing everyone's getting pushed towards [JPMorgan], and I think that's mainly for the stability,” said Stephen Campbell, a startup founder and head of the Generative AI Collective. “I mean, I would still almost trust putting my money in SVB now after the collapse than in something as tiny as Mercury.”
But SVB’s failure also created an enormous vacuum for venture debt—a form of financing commonly pursued by early stage, high-growth tech startups.
SVB was the largest—and arguably the first—provider of venture debt financing, a type of loan that typically doesn’t require founders to dilute the value of their shares.
SVB was known to provide favorable terms in venture debt, and often maintained relationships with those startups as they grew. It banked nearly half of all U.S. venture-backed startups, according to PitchBook, and 44% of U.S. tech and healthcare companies that went public last year were SVB clients.
At the end of 2022, SVB had total deposits worth up to $173 billion, with a roughly $73 billion loan book, according to PitchBook figures. Roughly a fifth of those loans were venture debt; the bank lent an estimated $6.7 billion to startups in 2022.
“SVB can still get bought or the loans could get picked apart by different buyers,” said Zack Ellison, founder and chief investment officer of A.R.I. Venture Debt Opportunities Fund. “Either way SVB’s market share will get redistributed.”
For remaining firms that offer venture debt, Ellison said the deal pipeline has “expanded exponentially” nearly overnight. In the short term, though, the uncertainty means lenders' purse strings will be drawn tight for the vast majority of companies.
“Generally speaking, this is going to create friction in transacting, meaning higher costs,” Ellison said. “It’s almost a law of nature: If folks are going to have to spend more time, take more perceived risk and work harder to get deals done, there’s less capital available.”
Startups seeking venture debt may be offered less favorable terms than SVB would have provided, with debt issuers asking for a chunk of equity along with the financing, said Schulz.
SVB’s failure dealt a new blow to founders facing an already-challenging climate as venture capitalists pull back and startup valuations recede.
In NFX’s survey of startup founders, 59% said the fall of SVB will make it more difficult to fundraise, and cited it as a major concern for their companies. Twenty-two percent were worried they won’t be able to raise funds at all this year.
“I think the founders need to understand that it's going to make the fundraising environment even more difficult for them because there is no reward for people to say yes right now,” said James Currier, a partner at NFX. “Instead of investing in something for the upside, you basically say: ‘What can we not not invest in?’”
Founders mourned SVB’s collapse, saying that the bank was one of the few to forge personal relationships with its clients—many of whom were small businesses or startups with few employees. Several investors and founders said that newer financial technology players like Mercury will likely fill the void over time.
“SVB was such a flexible and creative partner, not just for people creating new companies but for those figuring out how to do financing along the way,” said James Cham, a partner at Bloomberg Beta. “It allows the next generation of folks—such as Mercury and Brex—to figure out what to do.”
Still, SVB’s sudden collapse left people in tech wondering how the industry will view future banking relationships, and whether any one player can take the place of the once-dominant bank.
Many are waiting in the wings to see who could acquire the bank, and what that might mean for the Bay Area tech ecosystem.
“We hope a visionary bank can take [SVB’s assets],” added Haba. “If we can get a good bank to maintain that spirit, that would be great for the tech industry.