The tech industry, already on-edge from widespread layoffs in an uncertain economy, fell into a panic over the past 24 hours as moves by a major Silicon Valley lender spurred a steep sell-off on Wall Street and sparked fears of a run on the bank.
A number of startups are said to have weighed pulling their money this week from Silicon Valley Bank amid liquidity concerns, according to media reports and public posts from venture capitalists. Other prominent figures in the startup community are urging caution to avoid fueling what one venture capitalist called “mass hysteria” that could further destabilize a financial institution that has long been a key partner to the tech industry.
SVB Financial Group’s stock plunged 60% on Thursday after the prominent tech lender told investors it had to sell shares and a portfolio of US Treasuries in order to cover for plunging customer deposits. Shares were halted on Friday morning after falling more than 60% in pre-market 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. (Reps for the bank did not immediately respond to a request for comment.)
The uncertainty at Silicon Valley Bank spilled over to a decline in banking stocks Thursday, raising fears of a contagion risk for the broader financial industry. But there were also more immediate concerns in Silicon Valley, as the bank has partnered with nearly half of the venture-backed tech and health care companies in the United States.
Founders Fund, an influential venture capital firm founded by billionaire Peter Thiel, reportedly advised its portfolio companies to pull money from the bank. (A Founders Fund rep declined CNN’s request for comment). Tribe Capital, meanwhile, urged companies to be mindful of where they keep their money and how they fundraise.
“Any bank with a business model is dead if everyone moves,” Arjun Sethi, an investor at Tribe, wrote in a memo to founders, which he shared on Twitter. “Since risk is nonzero and the cost, it’s better to diversify your risk, if not all.”
Sethi urged founders to “hold your assets in the most liquid traditional banks, and do not take unnecessary risks.” He also recommended founders “call every debt line, close all primary rounds, do it now, and be willing to make concessions.”
Other prominent venture capitalists called for calm in an apparent bid to avoid fueling panic. Mark Suster, a partner at venture capital firm Upfront Ventures, urged those in the VC community to “speak out publicly to quell the panic” around Silicon Valley Bank, saying in a lengthy Twitter thread that “classic ‘runs on the bank’ hurt our entire system.”
While urging people to stay calm, however, he added, “I know some have already withdrawn money. I know some are advising this. I know it’s scary…What matters is that we don’t have or create mass hysteria.”
Villi Iltchev, a partner at Two Sigma Ventures, similarly said his peers should “support” the bank. “SVB is the most important capital provider to 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 moment for the tech industry. Rising interest rates have eroded the easy access to capital that helped fuel soaring startup valuations and funded ambitious, money-losing projects. Venture funding in the United States fell 37% in 2022 compared to the year prior, according to data released in January by CBInsights.
At the same time, broader macroeconomic uncertainty and recession fears have prompted some advertisers and consumers to tighten spending, cutting into the industry’s revenue drivers. As a result, the once high-flying tech world has fallen into a steep cost-cutting season marked by mass layoffs and a renewed focus on “efficiency.”
The situation at Silicon Valley Bank may have been worsened by more startups feeling pinched for cash and needing to withdraw funds. Now, the bank’s issues risk compounding the industry’s cash crunch and broader turbulence.
In his post suggesting a bailout may be needed, Ackman said a Silicon Valley Bank “failure” could “destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash.”
Ackman compares SVB’s situation to Bear Stearns, the first bank to collapse at the start of the 2007-2008 global financial crisis. But this time, the trouble is brewing in Silicon Valley’s backyard.
– CNN’s Allison Morrow contributed to this report.