Silicon Valley Bank: The Massive Failure That Threatens An Entire Generation of Startups

Few institutions have touched as many startups as Silicon Valley Bank (SVB), with its 2022 data proudly showing that it banked nearly half of the venture-backed tech and life sciences companies. But in the course of a few days, it went from a powerhouse in the industry to one of the most devastating and surprising failures since the global financial crisis.

What Happened to Silicon Valley Bank?

The deep-seated financial institution found itself on the receiving end of a bank run, which saw startups and industry powerhouses scrambling to withdraw their money. It all began on Wednesday when Silicon Valley Bank announced that it needed $2 billion in capital after losing $1.8 billion on asset sales.

The attempt to raise capital failed, and the SVB started to look into a potential sale, but that was hampered by the outflow of deposits. SVB’s parent company, SVB Financial Group, felt the pain as well, with shares falling drastically.

On Friday, US banking regulators seized control of SVB, the country’s 16th largest bank. The Federal Deposit Insurance Corp. (FDIC) moved all deposits from Silicon Valley Bank to a new bank. According to the FDIC:

• Insured members will have access to their deposits by Monday.
• The physical bank branches are also supposed to open on Monday.
• It is unclear what the deposit total at SVB is right now.

There was around $212 billion in assets and $173 billion in deposits in 2022, but it is still unknown how much of that was taken out as part of the bank run. It is also unclear how the failure will impact other banks, which might become cautious after the sudden fall.

How Much Will Silicon Valley Bank Depositors Get Back?

The standard insurance provided by the FDIC only covers up to $250,000, which is nowhere near the amount lost by many. As for the uninsured, they will get receivership certificates for their balances, and regulators have stated that they will pay them advanced dividends within the week.

However, additional dividend payments and how much depositors actually get back will depend on what regulators get from selling SVB assets. There is also a chance that another bank takes ownership of the remaining assets, but it leaves any companies relying on funds to make payments and payroll in the lurch.

Companies Affected by the Fall of Silicon Valley Bank

Roku is among the larger companies devastated by the failure of SVB, with reports saying that the company had around $487 million in cash there. That accounts for around a fourth of the company’s assets, and according to Roku, the assets held by SVB were mostly uninsured.

Vox Media, which is responsible for publishing New York magazine, The Verge, and others, had a significant amount of money in SVB. While it does not foresee any disruptions and has investors ready to support it, the company is one of many taking a hit because of the failure.

FarmboxRx, a health food delivery startup, had eight figures stored in SVB, but with the failure, all that remains is uncertainty. For its founder, Ashley Tyrner, what happens next is the most important part.

Rippling, an HR platform, is another victim of the SVB crisis. Due to the sudden closure, some customers are not properly receiving their payroll, which shows there is a trickling effect impacting more than just the startups and companies banking with SVB.

CAMP, a national retail chain of family experience stores launched in 2018, responded quickly to the failure. It launched a BANKRUN sale, offering 40% off to bring in customers in an attempt to keep the company afloat.

However, these are just a few of those impacted. Considering nearly half of the venture-backed tech and life sciences companies interacted in some way with Silicon Valley Bank, there are a lot of people waiting to see what happens come Monday.