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SVB’s implosion leaves the future of start-up banking uncertain


When Liz Giorgi started her second business — an online platform that lets internet retailers get high-quality photos of their goods — she thought getting a bank account would be easy. After all, she didn’t have trouble getting credit cards, loans or checking accounts for her first venture, a production company she successfully sold after seven years.

This time was different. Her longtime bankers were nervous about working with a small internet software start-up. She tried the big national banks, to no avail. In total, 27 banks rejected her.

Then, in 2019, she found Silicon Valley Bank.

Giorgi got connected to the California bank through Techstars — a prestigious start-up mentorship program. SVB reps flew to Colorado, where the program took place, took her to lunch and courted her. Twenty-four hours later, Giorgi’s company, Soona, finally had a bank account.

Countless start-ups tell stories of the same red-carpet treatment. For 40 years, SVB grew with the tech industry, becoming a fixture of the tightknit community while serving both start-ups and their employees — eventually becoming the go-to bank for some of America’s most powerful and wealthy people.

Then, a week ago, it all came crashing down. Customers made a run on the bank, withdrawing $42 billion, after signs of financial weakness. The morning after, the government stepped in and closed it.

Now, the tech and venture community is reeling from the loss, worried that SVB’s collapse will stall America’s innovation engine. Already, questions are emerging about whether lending to small tech companies is a viable business model going forward. And start-ups — many of which are inherently risky gambles for banks — aren’t sure who will help them moving forward.

“I’m disappointed,” Giorgi said. “We had a relationship with a bank that understood our business, and we as an industry didn’t keep our eye on the ball enough to really continue to ensure that was a safe mechanism.”

Concerns grow across the tech industry

The meltdown at SVB amplifies broader concerns about the tech industry, which after years of meteoric growth has finally faced a major slowdown and increasing skepticism — particularly when it comes to its riskier businesses. Companies such as Amazon and Facebook parent company Meta have cut tens of thousands of workers as they seek to trim their businesses and return to prior levels of profitability. Tech giants are moving away from developing “moonshot” projects. It has become more difficult for start-ups to raise money to start and maintain their businesses.

Amazon founder Jeff Bezos owns The Washington Post. A spokesperson for SVB did not return a request for comment.

While the government has made it possible for the start-ups and other depositors to have their funds returned, the elimination of SVB is a major blow amid the already concerning climate for tech — and will set the industry back even further.

Founded in 1983, the bank has specifically catered to venture capital-backed tech companies, a sector where failure is the norm. Most firms take years to begin turning a profit, and only a small handful break through and become business titans like Google and Facebook.

SVB’s willingness to take on those risks made it a fixture of the Bay Area tech scene. Start-ups celebrating multimillion-dollar funding rounds deposited the money there. Tech executives looking for a mortgage tapped the bank. And the firm also became well-known for providing banking services to the posh wineries where its tech clientele went for retreats and weekend getaways.

It became a ubiquitous sponsor of tech conferences, and through the start-up boom that followed the 2008 financial crisis, SVB expanded across the United States and then the world, opening offices in Canada, Germany, Israel and a handful of other countries, a shining example of the success and innovation coursing out of America’s tech scene.

By the time of its collapse, the firm served more than half of the venture-backed companies in the United States, according to its website. It also required many customers to bank with it exclusively as a condition of service, leading to even more concentration.

As the bank’s deposits ballooned alongside the tech boom, it put huge amounts of money into long-term bonds. But over the past year, steadily increasing interest rates have made venture capitalists more conservative, forcing start-ups to work with the money they have rather than expect fresh funding rounds in the coming months. Many are drawing down the cash hoards they’d stored over the years, largely in SVB.

Breaking down SVB’s collapse

Last week, the firm surprised its investors and depositors by saying it had sold $21 billion of its assets and would sell some of its own shares to shore up its balance sheet. The long-term bonds the bank had put so much money into — traditionally a safe bet — were now worth less than what the bank paid for them because higher interest rates meant people could now find other bonds that paid higher interest elsewhere.

The same people who had been willing for years to stash their companies’ money, and their personal fortunes, at SVB, suddenly balked. Concerns rippled through group chats and social media. High-profile venture firms told their portfolio companies to get out.

What’s left is owned by the government, which — in a dramatic move — has pledged to back deposits above the $250,000 limit insured by the Federal Deposit Insurance Corp. so every SVB customer will be fully repaid.

That guarantee has stemmed the immediate panic that swept through the tech world over the weekend. On Monday, most companies were able to access their money, and many began taking it out to put in other banks. But the long-term impact of SVB’s failure is just beginning to set in.

“The biggest loss that we will feel is the social fabric that SVB provided,” said Casey Rosenthal, CEO of security software company Verica. “My investors and I will have a much more difficult time finding financial solutions like venture debt loans with other banking providers who aren’t as technically savvy.”

Customers lined up earlier this week to withdraw their funds. One venture capitalist, who spoke on the condition of anonymity to keep his firm’s finances private, said he plans to take his business to Citi or Bank of America instead.

His company was among those telling their portfolio companies to withdraw their funds from SVB last week, a position he acknowledged was part of the bank’s demise.

“It’s frustrating because you get one warning sign … it costs nothing to take your money somewhere else and potentially you’re risking money by leaving it in,” he said.

Politicians on both the left and right have criticized the government’s rescue of SVB, and President Biden has taken pains not to call it a “bailout” for fear of being accused of helping wealthy bankers.

Isa Watson, CEO of New York-based social media company Squad, said her start-up had a covenant with SVB to bank exclusively. Still, she wasn’t looking for alternatives before the bank run.

“SVB was the only bank that really took us seriously in our early days before we raised venture capital,” said Watson, who began banking with SVB five years ago.

Last week, Watson first started hearing that something was wrong Wednesday night. By Thursday, it was all over social media.

Watson conferred with investors and other founders about whether to pull her company’s money out. But before she could make a final call, the government stepped in and shut down the bank. She spent the weekend transferring the company’s recurring bills onto her personal credit card.

“There will have to be an SVB replacement,” she added.

For now, it’s unclear what that could be. Other regional banks in the Bay Area cater to start-ups and tech founders, too, like First Republic Bank, but none have the level of expertise and reputation that SVB had. And investors are worried First Republic could be in trouble, too — its stock is down 82 percent since March 8.

The government is shopping around what’s left of SVB to potential acquirers, but new management may be skeptical of the business model that potentially left the bank in a precarious position. Start-ups themselves will be careful not to put all their eggs in one basket, likely banking with multiple banks in the future.

The tech world isn’t perfect, and much of the criticism leveled at it, such as the lack of funding going to female founders, is legitimate, Giorgi said. SVB’s collapse, though, creates a new set of issues no one was expecting.

“There are clearly problems here. I just don’t think any of us anticipated that the big problem was our bank,” Giorgi said. “That wasn’t the one that we saw coming.”

Lisa Bonos contributed to this report.

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