The sudden closure of Silicon Valley Bank (SVB) has caused chaos for many startups and venture capital (VC) firms that had accounts with the bank. Some companies are now facing the possibility of going bankrupt if the Federal Deposit Insurance Corporation (FDIC) fails to act swiftly. Here’s what we know so far about the situation:
VC Funds Pull Investments, SVB Shut Down
After several large VC funds told their investors to withdraw their investments from SVB, the US and UK divisions of the bank shut down. This move had a significant impact on the startup world since SVB “banks nearly half of the 2022 US venture-backed technology and life science companies,” according to the company’s financial highlights presentation for Q4 2022.
SVB’s announcement that it would sell $1.25 billion USD of common stock and $500 million of depositary shares shocked the market. In addition, SVB revealed that it had lost about $1.8 billion in Q1 2023 due to the selling of its “available for sale securities portfolio,” which included approximately $21 billion in security funds.
FDIC Freezes Withdrawals, Companies in Limbo
The FDIC froze withdrawals and closed SVB’s branches, leaving companies with accounts in limbo. This situation comes at the worst possible time for businesses that deal with SVB since payroll and other costs are rapidly approaching.
VCs Urge Clients to Withdraw Funds, Triggering Bank Run
When VC firms like Peter Thiel’s Founders Fund and Coatue Management urged their clients to withdraw their funds on Thursday afternoon, it triggered a bank run that ultimately led to FDIC intervention.
SVB’s Total Deposits
Of SVB’s total deposits of $173.1 billion as of December 31, 2022, $151.5 billion were uninsured in its US offices, and $13.9 billion were held in overseas branches. While that is in line with FDIC rules requiring an insured deposit ratio of 1.35%, startups and VCs with accounts at SVB were worried about liquidity, fueling the bank run.
Los Angeles-based Esports Organizations Unaffected
In a report published by Esports Advocate, Several Los Angeles-based esports organizations have no ties with SVB in terms of business and other trades. FaZe Clan, Sentinels, Immortals, and TSM have stated that they currently do not have any business deals with SVB. However, Cloud9 and 100 Thieves are yet to comment on the situation.
Fate of SVB’s Donation to SoLa I CAN Foundation Uncertain
The fate of SVB’s $300,000 donation to the SoLa I CAN Foundation’s Technology and Entrepreneurship Center “powered by Riot Games” remains uncertain. The Los Angeles-based minority-owned and -operated social impact fund, the nonprofit affiliate was awarded the funding in January.
Casual Mobile Games Developer Dealt with SVB
Games2Win, an Indian tech giant that received $6 million in a Series B investment headed by Clearstone Venture Partners in 2011, also dealt with SVB. The business, which has been around since 2007, offers a wide variety of casual games and boasts more than 15 million monthly users. The full amount of the company’s damage from SVB’s collapse is yet unknown.
The sudden closure of SVB has created chaos in the startup and VC world. While some companies have no ties with the bank, others are now facing bankruptcy if the FDIC fails to act swiftly.
