Silicon Valley Bank gets new owner
Startups spooked by collapse took `flight to safety' with big banks
Silicon Valley Bank's rapid fall this month initially felt cataclysmic for the Bay Area's startup industry. Less than three weeks later, news of the bank's purchase by First Citizens Bank was met Monday with little more than raised eyebrows.
Silicon Valley had moved on, quickly.
“We don't even think about it anymore except to say, `Oh my gosh, remember how crazy it was?' ” said Chon Tang, general partner at Skydeck, UC Berkeley's startup accelerator.
The Santa Clara-based bank's demise set off a crisis in confidence in the banking industry but also opened up opportunity for other banks to jump in to serve startups suddenly scrambling for banking services.
Penelope Finnie, CEO of menstrual products startup Egal, had long appreciated Silicon Valley Bank's services, but its sudden implosion early this month, with a large sum of just-deposited Egal funding, spiked her stress level — and sent her elsewhere.
“I went straight to Chase,” said Finnie, a longtime Bay Area resident now running Egal in Boston. “They were completely overwhelmed but had an all-hands-on-deck attitude.”
Chase, Wells Fargo, Bank of America and Citi are the “big beneficiaries” of Silicon Valley Bank's demise, said veteran banking analyst
Ken Thomas, president of Community Development Fund Advisors in Miami. “This is a flight to safety,” Thomas said.
Sean Randolph, senior director of the Bay Area Council's Economic Institute, said some startups also appear to be taking their business to San Francisco-based First Republic Bank, whose stock tumbled earlier this month amid fallout from the Silicon Valley Bank fiasco but has started to rebound.
The Federal Deposit Insurance Corp. said in a statement March 26 it had approved the purchase by First Citizens Bank & Trust Co. of most of Silicon Valley
Bank's business. First Citizens, based in Raleigh, North Carolina, agreed to buy about $72 billion of Silicon Valley Bank's assets at a discount of $16.5 billion.
First Citizens — taking on Silicon Valley Bank assets of $110 billion, deposits of $56 billion and loans of $72 billion — said 17 former Silicon Valley Bank branches would start operating Monday as “Silicon Valley Bank, a division of First Citizens Bank.”
Widespread revelations early this month about Silicon Valley Bank's precarious financial position sparked a run, and the $151 billion in deposits it had at the end of 2022, as sketched
out in a federal regulatory filing, shrank by 21% to $119 billion by March 10, as the FDIC reported Monday. The institution's deposits cratered even further after the FDIC seized control of it March 10.
As of Monday, the failed bank's assets totaled $56 billion — a nosedive of $63 billion, or 53%, during just the two weeks since March 10 and a plunge of 63% from the end of 2022. About $90 billion in assets remain in FDIC'S receivership.
Silicon Valley Bank rose to prominence as banker of choice for Silicon Valley startups through savvy services such as free international wires and integration
with popular software for payments and tax filing, and for its close relationships with venture capital firms and its lending to venture-backed startups.
Loaning money to startups carries higher risks than typical business lending, and large banks “may or may not have the internal culture needed to embrace the startup model,” said Randolph.
But it may not matter much if big banks, or First Citizens, step in to fill the lending role formerly played by Silicon Valley Bank, Tang said. What mattered most to startups were the connections Silicon Valley Bank fostered through its close ties to the venture capital industry and innovation economy and the startupspecific conveniences it offered, Tang said. The “venture debt” the bank provided — a catchall phrase for bank loans to venture capital-backed startups — plays a relatively small part in startup financing, Tang said.
“Of the 200-plus companies that have come through us, I'm aware of only a couple that have used the venture debt product,” Tang said. “For startups in general, borrowing from Silicon Valley Bank was a very, very minuscule part of where people got their capital.”
Venture capital firms will fill the relatively small startup-funding hole created by Silicon Valley Bank's collapse, Tang believes.
Tang and Randolph both see Silicon Valley Bank's staff as assets that could help it continue to cater to startups under First Citizens, and First Citizens, in an investor presentation Monday, said it planned to leverage the “expertise of legacy SVB'S talented employees.” First Citizens added that it planned to expand its reach in “the venture capital and private equity communities.”
As for startups' need to bank the money they raise and earn, many founders learned through the fall of Silicon Valley Bank that FDIC insurance only covers $250,000, Tang said. Now, most startups are either putting their funds into banks they believe are too big to fail or spreading out their money among multiple banks or availing themselves of bank services that disperse the money for them, Tang said.