Over 300 venture capital firms have pledged to do business with Silicon Valley Bank again if it is “purchased and appropriately capitalized,” after the bank failed on Friday. The bank was closed by California regulators and its deposits were seized after a run on the bank on Thursday.
SVB CEO Greg Becker announced on Wednesday that the bank needed to raise $2.25 billion overnight to bolster its balance sheet. This announcement was followed by a wave of deposit withdrawals the next day, causing the bank to collapse. Some venture firms, including Founders Fund, USV, and Coatue, withdrew their own money and instructed their portfolio companies to withdraw their deposits from the bank before the run.
The Federal Deposit Insurance Corporation (FDIC) will cover up to $250,000 per depositor and may start paying depositors under that cap as early as Monday. However, it is unclear how much of the bank’s deposits will see a full or partial recovery, and if there is an immediate buyer ready to acquire the bank’s operations.
Big names in tech and finance have been urging the federal government to take measures to protect depositors who were not under the $250,000 insured cap. Their main concern is that the loss of faith in mid-sized banks could occur if deposits over $250,000 are not protected.
Over 325 venture firms, including Accel, Cowboy Ventures, Greylock, Lux Capital, and Sequoia, have signed a letter expressing their willingness to work again with SVB under new ownership.
However, some venture investors believe that directives from influential firms contributed to the bank run. They lamented that even though the actions were prudent, they damaged the trust of a long-trusted financial partner to tech startups and firms that invest in them.
Also read: FDIC takes control of collapsed Silicon Valley Bank, retains employees for 45 days at 1.5x salary
Regulators’ actions and the collapse of the bank raise concerns about runs on regional banks, as well as the ability of small businesses that banked with SVB to pay their employees.
US Treasury Secretary Janet Yellen has been working with regulators to respond to the collapse of the bank and protect depositors. She expressed confidence in the ability of banking regulators to respond and emphasized that the US banking system is safe, better capitalized, and more resilient than during the 2008 global financial crisis.