The Silicon Valley Bank (SVB) failure has shaken the very core of the technology and startup ecosystem. Entering the first full week of March 2023, SVB was a very well-respected financial institution that ranked within the top 20 largest banks in the United States. Tacking on the closure of Silvergate Bank earlier this week as well, the ripple effects and fallout from this week’s chaos are likely just beginning.
What Happened to Silicon Valley Bank?
Late Wednesday, March 8th, SVB was shocked to discover that its balance sheet needed bolstering, thus starting a downward spiral with the news that it needed to raise $2.25 billion from investors to fix its liquidity issues. On Thursday, SVB customers withdrew an eye-popping $42 billion worth of deposits, according to regulators. By Friday, the Federal Deposit Insurance Corporation (FDIC) took over the bank, and operations were shut down by regulators. The second largest bank failure in U.S. history unraveled in a rapid 48 hours, sending flashbacks to the 2008 Great Recession and the failure of Lehman Brothers.
The cause of SVB’s downfall was the financial disruption brought on by increasing interest rates. Startup clients withdrawing their funds in a bid to maintain their companies in an increasingly hard market for IPOs and private fundraising left SVB without sufficient capital to continue. Consequently, the bank was forced to sell all its available-for-sale bonds at a devastating $1.8 billion loss, as announced late Wednesday.
Roku, BlockFi, Circle, and Others Emerge As Early Ripples of the SVB Failure
It did not take long after the announcement of the FDIC’s takeover of SVB that some of the initial information began to follow on the companies that had millions of dollars worth of deposits at the bank.
Roku (NASDAQ: ROKU) announced via SEC 8-K filing that it had around $487 million in deposits that are stuck at Silicon Valley Bank, which makes up roughly 26% of the streaming company’s cash reserves. However, the company did say its existing cash reserves that are left should be able to meet the company’s financial obligations “for the next twelve months and beyond,” according to a statement from Roku.
Roblox (NYSE: RBLX) is another company that is said to have had $150 million in deposits at the bank. Vimeo (NASDAQ: VMEO) also had deposits at SVB. However, both Roblox and Vimeo stated they did not believe the bank’s failure would have an impact on their respective operations.
The crypto company, BlockFi, which filed for bankruptcy in November 2022, also is said to have $227 million at SVB. Circle, another cryptocurrency company with a USDC, is also tied to the bank failure. However, it is unclear how much Circle had deposited at Silicon Valley Bank as of this writing.
The startup community, particularly across the San Francisco Bay Area, is likely to be some of the first entities to go under as a result of the bank failure. Y Combinator CEO Garry Tan called the bank failure an “extinction-level event” for the startup community, which could “set startups and innovation back by 10 years or more.”
Overall, it is highly likely that we will see some additional companies come forward over the next several days and disclose their financial situation if they had ties to SVB. Remember, public companies are required under SEC laws to report and disclose material events to investors within a very quick window. For some companies with SVB exposure, the closing of the bank may or may not be a material event depending on their financial relationship.
The fallout of the failure across the startup industry will likely be very painful. Silicon Valley Bank was a very important fixture within the startup and technology ecosystem. SVB’s sudden failure now puts those very startups at risk for not being able to keep their businesses open.
One of the biggest issues that the Federal Reserve and regulators will be taking close look at is other potential banks that could have similar liquidity issues brewing. Banks like First Republic Bank (NYSE: FRC), PacWest Bank (NASDAQ: PACW), Signature Bank (NASDAQ: SBNY), and others are already being rumored as potential ripple effect targets of the SVB fallout. The Federal Reserve has already called for an emergency meeting on Monday, March 13th to discuss the recent events and its response.