Venture capitalists and startups are beginning to pour deposits into the revamped Silicon Valley Bank, whether in hopes of helping stabilize the institution to survive or out of necessity.
The turnaround comes after the CEO of Silicon Valley Bridge Bank — created by federal regulators to manage Silicon Valley Bank’s deposits and assets — went on a charm offensive to convince customers to stay with the bank.
In a broad outreach to customers this week via emails and calls, CEO Tim Maiopoulos urged customers to keep their deposits in the bank and to transfer back deposits that have been withdrawn over the past few days. Mr Maiopoulos said the bank was open to new business and honoring existing lines of credit. “The number one thing you can do to support the future of this institution is to help us rebuild our deposit base,” Mr. Maiopoulos wrote in an email.
For many venture capitalists and startup founders, finding alternatives to Silicon Valley Bank is difficult. The bank, for example, supported pre-revenue companies and offered features that were tailor-made for the industry. That’s why many hope it survives.
On Tuesday, partners at venture firm Founder Collective decided to send capital back to the bank, managing partner David Frankel said. He said he received a call from a Wall Street Journal reporter thinking another bank was calling to verbally confirm the transfer to Silicon Valley Bridge Bank.
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“Given that the government has stepped up … it’s our responsibility to see if we can also help this institution survive,” Mr Frankel said, adding that SVB’s status had changed dramatically since the Federal a deposit insurance corporation took over, new government guarantees were put in place and a new chief executive was appointed. “Our view is that there are no downsides now,” he said.
Founder Collective moved a significant amount back to SVB, Mr. Frankel said, but declined to provide further details. The firm also informed its portfolio companies of its decision.
Meanwhile, on Tuesday, a group of major venture firms issued a statement calling for a launch the funds to be returned back to the bank. “As venture capitalists and clients of SVB, we recommend that our portfolio companies retain or return 50% of their total capital with SVB,” said a statement posted on Twitter by Hemant Taneja, CEO and managing director of General Catalyst.
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Mr. Taneja spoke on behalf of his firm, as well as Bessemer Venture Partners, Greylock Partners, Lightspeed Venture Partners, Lux Capital, Mayfield, Redpoint Ventures, SV Angel and Upfront Ventures. Some of the same firms said publicly on Friday that they would encourage portfolio companies to continue banking with SVB if the bank is properly capitalized.
However, many believe that a return to the status quo, where venture firms and start-ups often use SVB as their sole banking provider, is no longer prudent. Depositors rushed out of SVB late last week amid concerns about its solvency, exacerbated by deposit outflows. Customers tried to withdraw $42 billion, or about a quarter of SVB’s total deposits, on Thursday alone – before regulators seized the bank.
“All of the organizations, VCs and portfolio companies are probably not going to have all their eggs in one basket,” Mr. Frankel said. “We never had all our eggs in one basket.”
Elizabeth Inn,
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co-founder and general partner at seed-stage venture firm Hustle Fund, said that after speaking with an SVB representative on Tuesday, she emailed her portfolio companies telling them they could keep their money in the bridge bank for longer time. This contradicts advice Hustle Fund issued on Sunday night, telling portfolio companies to move their money because the bank is about to collapse.
“We must have suffered a failure in our communications,” Ms Ying said.
Although immediate liquidity concerns have eased and some companies are returning their deposits, SVB’s customers are concerned about the bank’s longer-term future, given that the federal government is holding an auction for its assets.
Moreover, many SVB borrowers remain concerned about the current status of their credit lines. The covenants on SVB’s debt instruments require many borrowers to bank exclusively with SVB. There were early indications on Wednesday that the bank may offer flexibility on those arrangements, investors said.
At least one portfolio company of venture capital firm Better Tomorrow Ventures decided to return money to SVB on Tuesday, it said
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Sheil Monot, co-founder and partner at the firm.
The founder told Mr. Monot that the company owed a debt to SVB, and to maintain it, the company needed to keep its capital there. It was a better choice for the company, Mr. Monot said, than trying to find another debt provider right now.
Chris Olsen, a partner at Columbus, Ohio-based Drive Capital, said the bank will need more to regain customer trust. Drive has already diversified its banking providers and has been working with its portfolio companies to do the same in recent days. The message from the bank’s new chief executive will not change that, he said.
“The biggest challenge is that the trust between the venture capitalists and the bank is broken,” Mr. Olsen said. “We’re all about to discover that when we built infrastructure on top of Silicon Valley Bank, it was vulnerable,” he said. “It will take time to rebuild that reputation.”
For more information, please contact Yuliya Chernova at [email protected]