Silicon Valley Bank’s acquisition injected confidence and stability into the larger financial system, but open questions remain about what’s next for the former financial engine of the startup ecosystem.
The decision by First Citizens Bank to purchase the bulk of SVB’s assets and liabilities saw a North Carolina-based regional bank taking over a decidedly Bay Area company and doubling its own size in the process.
The result has been a culture shift with ramifications large and small: SVB’s previously unlimited vacation policy—a popular option among tech firms—has been replaced with a fixed paid time off system. Meetings are led by managers with Southern drawls and a lack of easy familiarity with the Silicon Valley businesses that make up SVB’s client base.
One employee, who didn’t want to be named, said there’s been limited communication with SVB staff at this point, and the assumption is that First Citizens leadership is still mapping out and analyzing the full breadth of their new assets.
“The feeling is largely the same as a few weeks ago,” the employee said. “Maybe a hair better.”
First Citizens does not have the same history of supporting startups and the tech sector as SVB, but company executives have pledged to continue the bank’s legacy in that field.
In a companywide meeting on Monday, SVB’s new owners laid out a high-level strategy to hold onto business and garner new clients in a continuing time of uncertainty.
They emphasized a need to have sales and banking staff rebuild the connections to SVB’s client base and reassure them of the commitment to helping finance the innovation economy even under the bank’s new ownership.
Barbara Thompson, a spokesperson for First Citizens said the bank has been engaged in a series of virtual and in-person meetings with employees since the acquisition.
“We’re committed to the SVB business model, which is why we wanted to acquire SVB in its entirety,” Thompson said. “It’s a company with the deepest bench and most experience of any financial institution serving the innovation economy.”
She added that First Citizens has been operating in California for two decades. “We’ve learned that the First Citizens and SVB bank cultures are more alike than different,” Thompson said.
But many top employees aren’t sticking around to see the new owners in action.
Kim Olson, SVB’s former chief risk officer who had just joined in January, recently left the bank according to TechCrunch. Employees who specialized in tech banking are also moving on to fairer pastures: HSBC Bank USA announced last week that it had poached around 40 Silicon Valley Bank staffers “to establish a dedicated banking practice focused on the innovation economy.”
Departures include David Sabow, who previously led SVB technology and health care banking unit; SVB’s former chief business development officer Sunita Patel; and Katherine Andersen, who served as SVB’s head of U.S. life science and health care.
“Early-stage companies should have a partner that can support them at every phase of their growth and we think that HSBC is best placed to help do that,” said HSBC Bank USA CEO Michael Roberts in a statement.
The multinational bank’s U.K. arm previously acquired SVB’s U.K. division for a nominal one-pound ($1.24) fee in March citing a boost to “our ability to serve innovative and fast-growing firms, including in the technology and life-science sectors, in the UK and internationally.”
“SVB had a unique model that can’t be replicated, and any bank that tries isn’t going to be able to do so,” said Zack Ellison, founder and chief investment officer of Applied Real Intelligence's Venture Debt Opportunities Fund. "[First Citizens] doesn’t have SVB’s 40-year history; they don’t have their location; they don’t have their institutional knowledge; and even though they bought SVB, there’s a brain drain currently happening.”
Monday’s meeting came with an acknowledgment that SVB has lost some key banking talent, many of whom have taken their clients with them. A number of other firms have started to ramp up their activities in venture debt and tech banking in the wake of SVB’s collapse and acquisition.
“It’s making people a bit more anxious," the current employee said. "The core value prop of Silicon Valley Bank is our ability to create relationships with our clients.”
Experts say integrating two large organizations comes with challenges in merging two systems, ways of doing business and corporate cultures. That may pose a greater risk for a business like SVB, which had already bled deposits and customers prior to the acquisition.
“Cultural differences and regulatory hurdles can make integrating operations challenging and costly. Mergers may also result in customer disruptions, job losses and eroded trust,” said Seb Montoya, a director of business development at mergers-and-acquisitions software provider iDeals.
First Citizens has developed somewhat of a specialty in gobbling up distressed bank assets, acquiring more than 20 financial institutions since the Great Financial Crisis—but Silicon Valley Bank is far and away its largest prize.
Tim Mayopoulos, who briefly took over as the CEO of the Silicon Valley Bridge Bank, has now departed, and the company is in the process of filling its top management team.
“The critical question from a Silicon Valley Bank employee or customer is two things: First is whether they are involved in a line of business that First Citizens Bank wants to continue,” said Jay Hack, a partner at Gallet Dreyer & Berkey who specializes in banking law and mergers and acquisitions. “The second is whether they are in any way tainted by the problems that SVB suffered from.”
Hack said, in his experience, perks like retention bonuses may only go so far in stopping an exodus of key employees.
“The bottom line is if you were offered $50K to stay after your bank was acquired or take a job at your same salary and were guaranteed for five years, you would pick the guaranteed job,” Hack said.
“The shops that are hiring will get filled up pretty quickly. I don’t foresee many nonbank lenders hiring SVB folks—the bid for people is only from other commercial banks that are trying to grow tiny existing platforms quickly,” Ellison said.
Ellison added that he expects First Citizens to continue providing venture debt—a go-to fundraising option for early-stage founders who don’t want to give up equity—but in a diminished capacity.
Stifel Financial Corp. announced it had hired three former SVB executives responsible for building relationships with venture capital and emerging tech firms—Jake Moseley, Matt Trotter and Ted Wilson—as part of a push into the startup ecosystem. Moseley worked for SVB for more than two decades, recently serving as head of relationship management for technology banking.
In an interview with Axios, Moseley said he “was blindsided” by SVB's collapse and described the struggle to hold onto clients as “engaging in hand-to-hand combat when an avalanche or tsunami is coming at you.”