(CNN) The tech industry, already plagued by widespread layoffs in an uncertain economy, panicked over the past 24 hours when the moves of a major Silicon Valley lender prompted a steep Wall Street sell-off and fears of a run on the company triggered bank.
According to media reports and public posts from venture capitalists, a number of startups this week are said to have considered withdrawing their money from Silicon Valley Bank due to liquidity problems. Other prominent figures in the startup community are advising caution to avoid what one venture capitalist described as “mass hysteria,” which could further destabilize a financial institution that has long been a key partner in the tech industry.
Shares in SVB Financial Group plunged 60% on Thursday after the top tech lender told investors it had to sell shares and a portfolio of US Treasuries to meet falling customer deposits. Shares were halted Friday morning after falling more than 60% in premarket trading.
The bank is now reportedly in talks to sell itself after failing to raise additional capital, while some, including billionaire investor Bill Ackman, suggest the government should consider a bailout. (Representatives for the bank did not immediately respond to a request for comment.)
Uncertainty at Silicon Valley Bank spilled over into a decline in bank stocks on Thursday, fueling fears of contagion to the broader financial industry. But there were also more immediate concerns in Silicon Valley, given that the bank has worked with nearly half of the venture-backed technology and healthcare companies in the United States.
Founders Fund, an influential venture capital firm founded by billionaire Peter Thiel, reportedly advised its portfolio companies to withdraw money from the bank. (A Founders Fund representative declined CNN’s request for comment). Tribe Capital, meanwhile, urged companies to be mindful of where they keep their money and how they raise funds.
“Any bank with a business model is dead if everyone moves,” Arjun Sethi, an investor at Tribe, wrote in a memo he shared with the founders Twitter. “Since the risk is not zero and the cost, it is better to diversify your risk, if not all.”
Sethi urged the founders “to keep their assets in the most liquid traditional banks and not to take unnecessary risks”. He also recommended that the founders “call every debt line, close all primary rounds, do it now and be ready to make concessions.”
Other prominent venture capitalists called for calm, apparently not to foment panic. Mark Suster, a partner at venture capital firm Upfront Ventures, urged the VC community to “come out publicly to quell the panic” around Silicon Valley Bank, and said so at length Twitter thread that “classic ‘runs on the bank’ harm our entire system.”
He urged people to remain calm but added: “I know some have already withdrawn money. I know some advise it. I know it’s scary… What matters is that we don’t have or cause mass hysteria.”
Villi Iltchev, a partner at Two Sigma Ventures, similarly said his colleagues should “support” the bank. “SVB is the number one financier for tech startups and the biggest supporter of the community,” he said in a tweet. “Now is the time to support them.”
The rapidly unfolding fallout at Silicon Valley Bank comes at a challenging time for the tech industry. Rising interest rates have eroded the easy access to capital that has helped fuel soaring startup valuations and fund ambitious, money-losing projects. Venture capital funding in the United States fell 37% in 2022 from a year earlier, according to data released by CBInsights in January.
At the same time, broader macroeconomic uncertainty and recession fears have prompted some advertisers and consumers to rein in spending, hurting industry revenue drivers. As a result, the once-high-flying tech world has entered a steep cost-cutting season marked by mass layoffs and a renewed focus on “efficiency.”
Things may have gotten worse at Silicon Valley Bank as more startups feel squeezed for cash and need to withdraw funds. Now there is a risk that the bank’s problems will exacerbate the industry’s liquidity crisis and further turbulence.
In his post, in which he suggested a bailout might be needed, Ackman said a Silicon Valley bank “default” could “destroy a key long-term engine of the economy as VC-backed companies rely on SVB to get loans.” maintain and hold their assets”.
Ackman compares SVB’s situation to Bear Stearns, the first bank to fail at the start of the 2007-2008 global financial crisis. But this time, trouble is brewing in Silicon Valley’s backyard.
– CNN’s Allison Morrow contributed to this report.
