Big drop for the start-ups

It was a quick death. Silicon Valley Bank’s (SVB’s) 40 years of supporting the heart of the US tech start-up world evaporated in 14 hours, as it was unable to resist something as analogue as an oldfashioned bank run. With $209bn in assets, the lender became the second-largest bank failure in US history, as a business that had a market value of $44bn less than 18 months ago was shuttered by regulators on Friday.

Last Wednesday, SVB shocked the market by announcing a plan to raise $2.25bn to shore up its balance sheet that had been hammered by bad interest rate bets.

On Thursday SVB CEO Greg Becker called its most important clients, venture capital firms that not only used SVB themselves but also sent their portfolio companies to the bank, to ask them not to panic. Naturally enough, they panicked, pulling $42bn from SVB in a mad dash for the lifeboats before the ship went down, and last Friday the regulators arrived and it was goodnight Vienna.

SVB handled the finances of about half of US start-ups, and the ramifications for the sector are such that Garry Tan, the boss of start-up boot camp Y Combinator, described it to CNBC as an “extinction-level event” affecting more than 1,000 of its portfolio companies. Many of these startups will be pre-revenue, relying on investor funding to pay the bills, and now that loot is locked away behind the closed doors of SVB.

To add to the pain, 95% of its customer accounts are uninsured as they’re way over the $250,000 guaranteed by the Federal Deposit Insurance Corp.