Silicon Valley Bank Failure: SVB Timeline and What Angel Investors Need to Know
When Silicon Valley Bank Financial ($SIVB, SVB) and Signature Bank collapsed, President Biden and federal regulators vowed to protect all deposits in both banks. Next up, the U.S. Department of Justice and the SEC have launched investigations into SVB’s collapse and insider stock sales shorty before that collapse, The Wall Street Journal reports.
Meanwhile, additional question marks for some startups remain. For instance, SVB lent $6.7 billion to startups in 2022, according to Pitchbook. The resulting question for those startups, according to Pitchbook: What will happen to the debt they borrowed from the failed bank? The potential answer likely involves another financial services company stepping in to acquire that debt. But so far, a buyer has not emerged as of March 14, 2023.
In the meantime, President Biden on March 13, 2023 essentially said:
All customers are protected and will have access to their money today.
Taxpayers will not be on the hook for this. (Read between the lines, and fees paid to FDIC will apparently cover the costs to protect SVB customer deposits.)
SVB and Signature Bank executive management will be fired.
Investors (i.e., shareholders) in the two banks will not be protected since investing in publicly held stock involves risk.
The federal government must get a full accounting of what happened at each bank.
The U.S. federal government moves are designed to mitigate widespread concern among startups, technology firms, venture capitalists and portions of the banking sector. The federal plan will ensure that SVB’s customers continue to have access to funds held by the bank. Before the federal plan emerged, Ryan Gilbert, founder of venture firm Launchpad Capital, told CNBC: “The number one question is, ‘How do you make payroll in the next couple days. No one has the answer.”
What went wrong at SVB? The Wall Street Journal states it simply:
“SVB grew too fast using borrowed short-term money from depositors who could ask to be repaid at any time, and invested it in long-term assets that it was unable, or unwilling, to sell. When interest rates rose quickly, it was saddled with losses that ultimately forced it to try to raise fresh capital, spooking depositors who yanked their funds in two days.”
Without the federal plan that is now in place, the following companies and organizations could have taken a serious financial hit:
Roku: Streaming platform Roku said it had about $487 million of its $1.9 billion in cash and cash equivalents at SVB as of March 10, The Wall Street Journal reported.
Venture Capital and Private Equity: Silicon Valley Bank was also a bank to more than 2,500 venture capital firms, including Lightspeed, Bain Capital and Insight Partners, according to The New York Times.
Private Funds: Nearly 6,000 private funds managed by RIAs (Registered Investment Advisors) work with Silicon Valley Bank, according to Chris Addy, founder and CEO of Castle Hall Diligence.
FDIC Statement; Size of Silicon Valley Bank Failure
Before the federal plan emerged, Secretary of the Treasury Janet L. Yellen met with leaders from the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency to discuss developments around Silicon Valley Bank. In a statement before the weekend plan emerged, Secretary Yellen “expressed full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event.”
This is the second largest U.S. bank failure in history, trailing only Washington Mutual of 2008. Silicon Valley Bank was the 16th largest bank in the United States, with $209 billion in terms of assets under management. Washington Mutual had $307 billion in terms of assets under management when that bank failed in 2008.
Looking ahead, there’s a chance Silicon Valley Bank Financial and the bank’s assets could be acquired by another regional bank sometime this month, Bloomberg Radio is speculating.
Why Silicon Valley Bank Financial Failed and Closed: Timeline and Details
Here is a timeline tracking the Silicon Valley Bank closure, and the potential implications for angel investors, technology startups and the venture capital world.
Read from the bottom up. And keep checking back for updates.
Sunday, March 19, 2023: US regulators are moving toward a breakup solution for SVB after failing to line up a suitable buyer for the entire company, Bloomberg reported.
Friday, March 17, 2023: Multiple updates…
SVB Financial Group filed for Chapter 11 bankruptcy protection to “evaluate strategic alternatives for SVB Capital, SVB Securities and the Company's other assets and investments.”
The SEC issued a statement describing the “responsibilities of lead auditors to conduct high-quality audits when involving other auditors.”
Tuesday, March 14, 2023: Multiple updates…
The U.S. Department of Justice and the SEC have launched investigations into SVB’s collapse, and insider stock sales shorty before that collapse, The Wall Street Journal reports.
Private equity firms Apollo Global Management and KKR are among the parties reviewing a book of loans held by Silicon Valley Bank, CNBC reported. Blackstone may also be looking at the assets, Bloomberg reported.
Monday, March 13, 2023: Multiple updates…
President Biden essentially guaranteed that SVB customers will have access to all of their funds, and vowed that SVB management would be fired.
HSBC UK Bank plc acquired the UK subsidiary of Silicon Valley Bank (known as SVB UK) for £1.
Sunday, March 12, 2023: The U.S. government designed a plan to ensure all depositors would have access to their SVB funds by Monday, March 13.
Saturday, March 11, 2023: The Bank of England said it would place Silicon Valley Bank’s U.K. subsidiary into insolvency procedure following the collapse of its U.S. parent. Source: The Wall Street Journal.
Friday, March 10, 2023: Multiple updates…
FDIC Steps In: Silicon Valley Bank was “closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank. All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023.” Source: FDIC
Can Startups Meet Payroll?: Nearly 400 of Y Combinator’s roughly 3,000 active companies had a relationship with Silicon Valley Bank, according to a survey by the accelerator as of Friday, March 10. Over 100 of those startups said they worried they couldn’t make payroll over the next 30 days without a quick resolution for the bank. Source: The Wall Street Journal.
Loan Concerns: Sumo Logic, a provider of cloud analytics software, saw it stock fall about 6% because Sumo Logic has a loan agreement with SVB Financial. Private equity firm Francisco Partners is in the process of buying Sumo Logic ($SUMU) for about $1.7 billion. We’re watching to see if the SVB loan agreement impacts Sumo Logic’s pending sale.
No Buyer Yet: Silicon Valley Bank Financial was in talks to sell itself after attempts to raise capital have failed. Source: CNBC.
European Venture Capital Concerns: Hours before the bank’s failure, at least 10 European VC funds told their founders to pull funds out of Silicon Valley Bank. That follows prominent U.S. investors telling their portfolio firms to get their money out of the bank. Source: Business Insider.
The Big Run: Customers tried to withdraw $42 billion—about a quarter of the bank’s total deposits—on March 9 alone, a California regulator said in a filing. The flood of withdrawals destroyed the bank’s finances; at close of business March 9, it had a negative cash balance of nearly $1 billion and couldn’t cover its outgoing payments at the Fed, according to the filing. Source: The Wall Street Journal.
Trading Halted: Shares of SVB Financial Group ($SIVB) were halted after a 68% premarket selloff that came as the bank scrambled to raise fresh capital. Source: The Wall Street Journal.
More Trading Halted: First Republic, Signature Bank and other regional bank stocks were halted amid a selloff related to SVB concerns. Source: The Wall Street Journal.
Thursday, March 9, 2023: Multiple updates…
Initial Fall: Silicon Valley Bank’s stock (SIVB) fell 60% after investors reacted to the firm’s March 8 financial plan to cover financial losses.
VCs Tell Startups to Withdraw Money: Multiple venture capital firms are telling their startups to pull money out of Silicon Valley Bank. Source: Multiple Reports.
Bailout Speculation: In a tweet, Pershing Square CEO Bill Ackman wrote: “The failure of @SVB_Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered.”
Wednesday, March 8, 2023: Multiple updates…
Concerns Begin: SVB said it would book a $1.8 billion after-tax loss on sales of investments and seek to raise $2.25 billion by selling a mix of common and preferred stock. Source: The Wall Street Journal.
The late-afternoon announcement spooked venture capitalists, startups and technology firms that have accounts with Silicon Valley Bank. Source: Multiple reports.
Channel Angels Disclosures; Perspectives for Angel Investors
Neither Channel Angels nor founder Joe Panettieri (that’s me) have banking relationships with Silicon Valley Bank. We are checking in with our portfolio companies and partners to see if they have potential exposure to the Silicon Valley Bank closure.
Among the updates we’ve received from our partners:
Neither Propel(x), nor any of its affiliated entities, nor any of its syndicates bank with SVB.
Florida Funders does not bank with SVB, nor does the VC/angel group have any exposure to the bank, but Florida Funders does partner with SVB. A minority of Florida Funders’ portfolio companies bank at SVB.
Despite SVB’s collapse, our overall investment thesis remains unchanged. In short:
Only invest within your financial means. In Panettieri’s case, less than 5% of his net worth involves angel investing.
Accept the fact that angel investing is a high-risk undertaking, and only invest money that you can truly afford to lose.
The best way to mitigate angel investing risk is to build a diversified portfolio of investments. In Channel Angels’ case, that investment diversity spans roughly 20 companies across a range of technology sectors (AI, cybersecurity, hardware, IT automation) and U.S. regions.
All that considered, we continue to evaluate potential investments in and around the technology startup sector.