Peter Thiel’s Founders Fund and a handful of other venture capital firms on Thursday advised their portfolio companies to raise funds from Silicon Valley Bank in response to panic over the bank’s financial health in tech startup circles.
Founders Fund, a leading venture capital firm founded by billionaire Thiel, has urged its companies to move their funds, according to a person familiar with the matter who requested not to be identified to discuss private information.
Greg Becker, CEO of SVB Financial Group, held a conference call on Thursday advising clients of SVB-owned Silicon Valley Bank to “keep calm” amid concerns about the bank’s financial health, according to another well-known person.
A Founders Fund representative declined to comment. A Silicon Valley Bank representative did not immediately respond to a request for comment.
Becker delivered the roughly 10-minute conversation at around 11:30 a.m. Pacific time. He asked the bank’s clients, including venture capital investors, to support the bank, just as the bank has supported its clients for the past 40 years, the person said.
Worries about the lender swirled through Silicon Valley Thursday. There is “a lot of panic,” says Jenny Fielding, managing partner of the fund, which invests in start-up companies. Fielding said she is closely monitoring the situation with the bank, but has not briefed her portfolio companies on how to proceed.
Garry Tan, CEO of Y Combinator, warned his network of startups that the solvency risk was real and implied that they should consider limiting their exposure to the lender.
“We have no precise knowledge of what is going on at SVB,” Tan writes in a post known to Bloomberg News. “But every time you hear about solvency issues at a bank, and that might be considered credible, you need to take it seriously and prioritize your startup’s best interests by not exposing yourself to more than $250,000 in risk there. Your startup will die if you run out of money for whatever reason.”
Venture capital firm Tribe Capital advised its portfolio companies to withdraw some, if not all, of their assets from the SVB.
“It’s important to understand that all banks are leveraged and taking deposits, so by the time everyone moves out, any bank with a business model is almost dead by definition,” Tribe co-founder Arjun Sethi told portfolio companies in a statement released today. verified by Bloomberg. “Because the risk isn’t zero and the cost is small, it’s better to diversify your risk, if not all.”
Another company, Activant Capital, sent emails and texts to the CEOs of its portfolio companies asking them to transfer their SVB assets to other lenders and helped some move capital to First Republic Bank, the CEO said Steve Saracino.
Fears spread after the Santa Clara, Calif.-based SVB announced Wednesday that it was finalizing a $2.25 billion share sale after a significant loss in its portfolio, which includes U.S. Treasuries and mortgage-backed securities.
In an email signed Thursday morning by Mark Lau, chief of corporate practice at Silicon Valley Bank, the SVB said it has received questions about the company’s 8-k filing from many of its clients for the past 24 hours on Wednesday, said the email accompanying the conference call reviewed by Bloomberg.
Shares of SVB fell $161.79, or 60.4%, to $106.04 on Thursday, the lowest level since September 2016. Becker’s call was previously reported by the information. The stock fell further in aftermarket trading.
Some venture capitalists said they would support the bank. Investor Keval Desai, founder of Shakti, said he had not only instructed his portfolio companies to withdraw money, but also placed a buy order for the bank’s stock with a cap of $101 on Thursday.
“I’m not Warren Buffett,” Desai said, warning that he doesn’t give investment advice. “But I think it’s a buying opportunity.”
A prominent investor, Mark Suster, warned companies not to overreact to news about the bank. “I believe their CEO when they say they are solvent,” Suster said wrote“and not conflict with any banking relationships.”
Dan Scheinman, an investor who has backed companies like Zoom Video Communications, said Thursday he took calls from two startup companies in his portfolio wondering if they should close their accounts with the bank. He advised them to get more information before doing anything.
“What do we know about banks you would switch to? Are they better or worse off?’ he asked, he guessed. “It’s hard to switch, but it’s even more painful when the bank goes bankrupt.”
An email thread involving more than 1,000 Andreessen Horowitz founders was chock-full of news Thursday, with many urging each other to withdraw money from the bank. At one point in the thread, general partner David George intervened. “Hello everyone,” he wrote in a Bloomberg-verified post. “We know that you have questions about the handling of the SVB situation. We recommend that you pick up the phone and call your GP. Thank you DC.”
A similar thread has been circulating among CFOs at major startups, said a partner at a large corporation.
Many startup founders and executives were concerned about how a Silicon Valley bank collapse would affect Silicon Valley’s infrastructure. The bank could try to liquidate its holdings in portfolio companies, further depressing the already shaky valuations of many startups. These lower valuations will, in turn, further weaken the balance sheets of other banks, hedge funds and cross funds that hold the same assets.
Source: LA Times
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