Panic swept through the start-up industry on Thursday as investors at some venture capital firms urged portfolio companies to move their money from Silicon Valley Bank over concerns about the tech industry stalwart\u2019s financial stability.<\/p>\n
Silicon Valley Bank\u2019s spiral was set off by its surprise announcement Wednesday that it would take extraordinary and immediate steps to shore up its finances amid a dimming economic environment for the start-ups and other technology companies that dominate its client base. The bank disclosed that it had sold off $21 billion of its most liquid, or easily tradable, investments; borrowed $15 billion; and organized an emergency sale of its stock to raise cash.<\/p>\n
Banks are loath to take any of those steps \u2014 let alone all three at once \u2014 and when they do, the moves are typically carefully choreographed. Silicon Valley Bank\u2019s stock price plummeted 60 percent on Thursday as investors rushed to sell shares after the announcement.<\/p>\n
A bank spokeswoman did not respond to a request for comment.<\/p>\n
If Silicon Valley Bank failed, it would be the second-largest such unraveling in U.S. history, smaller only than the run on Washington Mutual during the 2008 financial crisis, when that bank had roughly $300 billion in customer deposits. At the end of last year, Silicon Valley Bank reported $212 billion in customer assets.<\/p>\n
The bank\u2019s slump dragged down the stock prices of its peers as concern swirled that others could run into similar problems. First Republic Bank in California fell 16.5 percent, Signature Bank in New York more than 12 percent and Zions Bancorporation 11.4 percent.<\/p>\n
Bigger banks also suffered. Bank of America and Wells Fargo dropped 6.2 percent while JPMorgan Chase fell 5.4 percent. The KBW bank index, which tracks the stocks of 24 major banks, fell nearly 8 percent, its worst one-day move since June 2020 in the early stages of the coronavirus crisis.<\/p>\n
Greg Becker, chief executive of Silicon Valley Bank, urged venture capital firms to stay calm in a conference call on Thursday.<\/p>\n
But a number of investors, including Arjun Sethi, an investor at Tribe Capital, advised companies to move some or all of their money from the bank. \u201cAlmost by definition, any bank with a business model is dead if everyone moves,\u201d Mr. Sethi wrote to Tribe Capital founders in a memo. Other firms made similar moves, according to four memos viewed by The New York Times.<\/p>\n
Founded in 1983, Silicon Valley Bank is small compared with Wall Street banks but has an outsize footprint among tech start-ups. It calls itself the \u201cfinancial partner of the innovation economy.\u201d In addition to its other banking services for start-ups, it is known for providing them loans and private wealth management to tech workers.<\/p>\n
Some start-up investors took to Twitter to predict that the bank would have to sell or be bailed out. Others tapped out premature eulogies, praising the bank for being a good partner over the years.<\/p>\n
Many sought to calm. Mark Suster, an investor at Upfront Ventures, wrote that he believed the only financial risk to Silicon Valley Bank\u2019s customers was a panic that led to a run on the bank.<\/p>\n
\u201cThink about how many companies would be wiped out overnight if SVB went bankrupt,\u201d he said in an interview. \u201cThis would be catastrophic, and people shouldn\u2019t be making jokes of it.\u201d<\/p>\n
Villi Iltchev, an investor at Two Sigma Ventures, urged the industry to \u201csupport\u201d the bank by not withdrawing money. Roseanne Wincek, an investor at Renegade Partners, wrote that a bank run caused merely by panic would be a \u201cself own\u201d for the industry.<\/p>\n
\u201cThere are two things in life that only exist if you believe in them: God and bank runs,\u201d said Anshu Sharma, chief executive of Skyflow, a data privacy start-up. He is also an investor in 65 other start-ups, and he urged his portfolio companies to sit tight.<\/p>\n
Sunny Juneja, founder of Canopy Analytics, a Bay Area start-up focused on real estate technology, said that he had tried to move his start-up\u2019s cash \u2014 a few million dollars \u2014 out of Silicon Valley Bank after his advisers and investors told him to do so on Thursday, but that the bank\u2019s online portal was down. He spent the afternoon trying to set up an account at another bank.<\/p>\n
\u201cI\u2019m doing everything I can in the shortest time period to make this happen,\u201d Mr. Juneja said. He said he felt bad, because Silicon Valley Bank had been a good partner, but saw no upside to staying with it amid the panic and no downside to leaving.<\/p>\n
A Silicon Valley Bank executive, in a note sent to clients on Thursday and viewed by The Times, wrote that it had \u201cbeen a tough day\u201d but that the bank was \u201cactually quite sound, and it\u2019s disappointing to see so many smart investors tweet otherwise.\u201d<\/p>\n
Like all its peers, and consistent with regulations, Silicon Valley Bank holds only a small portion of its customer deposits in cash available to be immediately withdrawn. The vast majority are either lent to other customers or invested to earn a return. That raises the specter that a rush of withdrawals would leave it unable to pay.<\/p>\n
The most immediate way to forestall the crisis would be to persuade clients not to pull their funds. In a letter to customers on Wednesday, Mr. Becker said the bank enjoyed the \u201cfinancial position to weather sustained market pressures.\u201d The letter, however, noted that customer deposits had come in lower than forecast in February, and did not address any withdrawals since then.<\/p>\n
After Mr. Becker\u2019s letter, Moody\u2019s downgraded the bank\u2019s bonds rating and slashed its outlook to negative, from stable. \u201cMoody\u2019s does not expect the environment will recover enough for SVB to materially improve its profitability, funding and liquidity,\u201d it said.<\/p>\n
The Federal Reserve Bank of St Louis had warned last month that as interest rates have risen, the value of banks\u2019 investment assets has fallen, with those losses then denting banks\u2019 capital.<\/p>\n
Some start-ups quickly angled to cash in on Silicon Valley Bank\u2019s struggles. An executive for one much smaller rival, Levro, sent a note to potential customers that said it had \u201can expedited processing\/approval process for current SVB customers.\u201d<\/p>\n
Joe Rennison contributed reporting from New York.<\/p>\n