VCs warn startups to pull money from troubled Silicon Valley Bank

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The stock price of Silicon Valley Bank (SVB) crashed over 60% yesterday after it revealed plans to sell shares to strengthen its balance sheet. The drastic drop has caused a flurry for startups as SVB is one of the banking leaders for firms looking to store cash and raise venture debt.

Shrishti Sahu, managing partner at India-based Swadharma Source Ventures, said in a tweet that Indian startups with US operations are being told by investors to withdraw their cash from SVB. According to her, around 80% of India-based startups doing business in the US bank with SVB.

A report from Reuters revealed that Peter Thiel’s Founders Fund has also asked founders in its portfolio to pull out of SVB. While most of its investments are from outside the region, the Founders Fund has also invested in companies like Australia’s Canva, which has a presence in the US, as well as in regional VC firms like Japan’s Coral Capital.

In a note to investors, SVB said it sold “substantially all” of its available-for-sale securities to help it bolster its financial position. This is at a US$1.8 billion loss. The bank also seeks to raise a total of US$2.3 billion in share sales, with General Atlantic committing US$500 million of the amount.

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The development follows the bank seeing deposits jump in 2021. However, it failed to grow its loan books fast enough, noted Jamie Quint – general partner at San Francisco-based Uncommon Capital – in a series of tweets. This pushed SVB to purchase US$80 billion in securities, but the value of these assets dropped significantly due to the recent interest rate hikes by the US Federal Reserve.