The Silicon Valley Bank ski trip to Deer Valley was one of the biggest annual networking events for technology start-ups before the bank failed last March, the largest bank to collapse since the global financial crisis.
Without missing a year, the party on the Utah slopes will go ahead this month as First Citizens — the North Carolina bank that acquired SVB from bankruptcy — jostles with the likes of JPMorgan, HSBC and Stifel for a share of the “innovation economy”.
“A year later, it feels eerily similar to pre-SVB downfall,” said Peter Hébert, chief operating officer at $5bn Silicon Valley venture firm Lux Capital. “Whatever gaps would have existed in the near term have very quickly been filled.”
For three decades, SVB was the central financing institution for technology and life sciences start-ups in the US. As it collapsed, about $130bn of its deposits and teams of its bankers headed for the comparatively fortress-like balance sheets of larger rivals.
The landscape for day-to-day banking of the venture capital ecosystem is more competitive than before SVB failed. But the core of the bank’s role was its high-risk appetite for underwriting loans to pre-revenue or lossmaking start-ups based on the strength of their venture capital backers and the likelihood they would continue to invest.
Despite the flood of new options, fledgling technology companies are in some cases struggling to get the same access to capital that powered the booming venture market for two decades. None is as appealing as the “one-stop-shop” linchpin to the venture community SVB had been.
“Venture lending has really bifurcated into two different businesses — early-stage lending and late stage or growth lending,” said David Spreng, founder and chief executive of Runway Growth Capital, a lender to venture-backed start-ups.
SVB specialised in the early-stage market where many larger banks had stayed away because of the risks involved.
“A lot of people have raised their hands and said we’d like a part of this business, but nobody has put a flag in the ground and said we’re going to become the next SVB,” Spreng said.
Often SVB loaned money in exchange for equity in the start-ups themselves, operating with a mentality closer to the venture economy it served than its peers on Wall Street — betting that a small percentage of its start-up clients would reach high valuations and make up for all of the deals where it lost money.
Early-stage venture debt deals have declined sharply since SVB collapsed. Lenders have tightened their standards and start-ups with uncertain financial prospects have been unable to secure expensive loans in a rising interest rate environment.
SVB’s new parent, First Citizens, is the closest to providing the same specific brand of venture debt. Its revamped SVB website outlines a familiar commitment to “back the backers” and SVB will co-sponsor the 2024 ski trip alongside IBM Ventures and law firm Fenwick.
But SVB is a fraction of its pre-crisis size. Deposits have fallen to $38.5bn from a peak of about $189bn, and it has made just $1.8bn of venture debt commitments under its new owner’s control. First Citizens’ “innovation portfolio” of loans, which it said was made up entirely of loans by SVB, totalled $4.3bn at the end of 2023, down from SVB’s loan book of $6.7bn a year earlier. The 2022 numbers include loans made internationally, whereas SVB has been solely a US bank since it was acquired last year.
“First Citizens understands that the SVB business was underwriting the underwriters,” said Lux Capital’s Hébert. “We still get the calls [from SVB] making sure we stand behind some of these companies, but it feels like there has been a tightening . . . standards have increased.”
One of the ways in which the market has changed is that it is now widely accepted practice for young companies to keep accounts at two or three banks.
That has been a boon for rival banks and fintech platforms such as Mercury and Brex, which have scooped up billions of dollars of deposits. But it has complicated life for founders. “Before the collapse we could see that most companies had most of their funds with SVB. That has completely changed in the last year,” said Camilla Matias Morais, chief operating officer at Brex, whose deposits have surged from $3bn to $7bn since SVB collapsed. “Brex definitely took advantage of that but . . . managing more relationships is just way more work.”
The old SVB’s lending terms typically required start-ups to hold all of their cash…
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