Among venture capitalists, there’s a widening divide between those who say startups would be wise to pull money out of Silicon Valley Bank and those who suggest keeping it there is a moral imperative that could help save the institution.
(Bloomberg) — Among venture capitalists, there’s a widening divide between those who say startups would be wise to pull money out of Silicon Valley Bank and those who suggest keeping it there is a moral imperative that could help save the institution.
Mark Suster, a prominent Silicon Valley venture capitalist who heads Upfront Ventures, called on fellow VCs to “speak out publicly to quell the panic” about SVB.
The financial world was in turmoil on Friday after SVB Financial Group, the parent company of SVB, faced a run on its assets. The chaos was a result of a surprise announcement on Wednesday from Santa Clara, California-based SVB that it was issuing $2.25 billion of shares to bolster its capital position after a significant loss on its investment portfolio. The stock plunged 69% in premarket trading in New York on Friday before trading in the bank’s parent was halted.
As the crisis deepened, several prominent venture capitalists, including Founders Fund, asked their portfolio companies to move their money out of SVB. Coatue Management, Union Square Ventures and Founder Collective also advised startups to pull cash, people with knowledge of the matter said.
But there are still many venture capitalists trying to shore up confidence in the bank, telling companies to sit tight, with some crediting the bank as a pillar upon which the spiritual home of startups and technology companies was built.
Thomas d’Halluin, a managing partner at Airbus Ventures, said on Twitter, “In VC, it takes a village to transform innovation. @SVB_Financial has been instrumental in this process, standing by VCs and startups in all weather. This cyclone should not affect our business compass: SVB is a stalwart of the VC community.”
The rest of the financial markets were spiraling downward, with the S&P 500 headed toward its lowest level since January, as other larger financial institutions took a hit and fear spread that people would start to move their deposits to bigger banks.
For months SVB has been adamant that it wouldn’t significantly restructure its balance sheet so its steps this week to shore up capital stunned investors.
Some VCs argued with their co-investors about the risk of a terminal liquidity crisis, though many voiced support that the bank doesn’t have solvency issues. Some expressed hope that a white knight will step in to save SVB and indeed, CNBC reported that SVB Financial Group is in talks to sell itself.
Eileen Burbidge, founding partner at London-based Passion Capital, said that she was fielding calls from spooked founders asking if they should move their money and was telling them it’s a low-cost way to diversify against the risk. However, she said that Passion Capital had no plans to move its own money from SVB. “We are confident in their long-term position and don’t have any concerns about their liquidity.”
What most venture capitalists agreed on was the bank’s communication of its offering was handled poorly and opened the doors for Twitter-driven hysteria contributing to a run on the bank.
“This is part of what fueled the insecurity of the past month and the collective freak out,”said Nikhil Basu Trivedi, co-founder and general partner at Footwork, a venture capital firm that invests in early-stage startups. Nevertheless, he said he’s keeping some money at SVB.
Still, diversification of assets was a common refrain, even among the loyalists.
“Diversification of where all of us hold capital feels prudent in this moment,” Trivedi said. “That includes keeping capital with SVB, giving it a fighting chance. SVB having to be bailed out with a continued run would be atrocious for the ecosystem.”
–With assistance from Olivia Solon and Mark Bergen.
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