Venture investors and startups are starting to return deposits to the revamped Silicon Valley Bank, whether in hopes of helping stabilize the institution so it survives, or out of necessity.
The reversal comes as the chief executive of Silicon Valley Bridge Bank—created by federal regulators to manage Silicon Valley Bank deposits and assets—has gone on a charm offensive to persuade clients to stay with the bank.
In a broad outreach to clients this week through emails and calls, CEO
Tim Mayopoulos
urged clients to keep their deposits in the bank and to transfer back deposits that were taken out in the past several days. Mr. Mayopoulos said the bank is open for new business and honoring existing credit lines. “The number one thing you can do to support the future of this institution is to help us rebuild our deposit base,” Mr. Mayopoulos wrote in an email.
For many venture investors and startup founders, finding alternatives to Silicon Valley Bank has been difficult. The bank supported pre-revenue companies, for example, and offered features that were purpose-built for the industry. That’s why many hope it survives.
On Tuesday, partners at venture firm Founder Collective decided to send capital back to the bank, said Managing Partner
David Frankel.
He said he picked up a call from a Wall Street Journal reporter thinking it was another bank calling for a verbal confirmation about the wire to Silicon Valley Bridge Bank.
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“Given that the government stepped up … it’s our responsibility to see if we can also help this institution survive,” Mr. Frankel said, adding that the status of
SVB
changed dramatically after the Federal Deposit Insurance Corp. took it over, the new government assurances were put in place and the new CEO was appointed. “Our view is there’s no downside now,” he said.
Founder Collective moved a meaningful amount back to SVB, Mr. Frankel said, though he declined to provide further details. The firm also informed its portfolio companies of its decision.
Meanwhile, a group of large venture firms issued a statement Tuesday urging startup funds be moved back to the bank. “As venture capitalists and customers of SVB, we are recommending our portfolio companies to keep or return 50% of their total capital with SVB,” read the statement posted on Twitter by
Hemant Taneja,
chief executive and managing director of General Catalyst.
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Mr. Taneja was speaking on behalf of his firm as well as of Bessemer Venture Partners, Greylock Partners, Lightspeed Venture Partners, Lux Capital, Mayfield, Redpoint Ventures, SV Angel and Upfront Ventures. Some of the same firms said publicly on Friday that they would encourage portfolio companies to continue banking with SVB should the bank be appropriately capitalized.
Many believe, however, that a return to the status quo, where venture firms and startups often used SVB as their sole banking provider, is no longer prudent. Depositors rushed out of SVB late last week because of concerns about its solvency, exacerbated by the deposit outflow. Customers attempted to withdraw $42 billion or about a quarter of SVB’s total deposits on Thursday alone—before regulators seized the bank.
“All organizations, VCs and portfolio companies, probably are not going to have all their eggs in one basket,” Mr. Frankel said. “We never had all our eggs in one basket.”
Elizabeth Yin,
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co-founder and general partner at early-stage venture firm Hustle Fund, said that after speaking with an SVB representative on Tuesday, she emailed her portfolio companies, telling them they could keep their money at the bridge bank for longer. That was counter to the advice Hustle Fund issued Sunday evening, telling portfolio companies that they needed to move their money out because the bank would be dissolving soon.
“We have had to flip-flop in our communications,” Ms. Yin said.
While the immediate liquidity concerns have been mitigated and some companies are moving their deposits back, SVB clients are concerned about the longer-term future of the bank given that the federal government is conducting an auction for its assets.
What’s more, many SVB borrowers remain concerned about the current status of their credit lines. Covenants on SVB debt facilities required many borrowers to bank solely with SVB. There were early indications Wednesday that the bank may offer flexibility on these arrangements, investors said.
At least one portfolio company of venture firm Better Tomorrow Ventures has decided to return money to SVB on Tuesday, said
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Sheel Mohnot,
co-founder and partner at the firm.
The founder told Mr. Mohnot that the company has a debt line with SVB and to maintain it the company had to keep its capital there. That was a better choice for the company, Mr. Mohnot said, than trying to seek another debt provider at the moment.
Chris Olsen,
partner at Columbus, Ohio-based Drive Capital, said it would take more for the bank to earn back the trust of clients. Drive was already diversifying its banking providers and working with its portfolio companies to do the same in recent days. The message from the new CEO of the bank won’t change that, he said.
“The biggest challenge is that trust has been broken between the venture capitalists and the bank,” Mr. Olsen said. “We are all on the receiving end of discovering that when we built an infrastructure on top of Silicon Valley Bank, it was vulnerable,” he said. “It’s going to take time for rebuilding that reputation.”
Write to Yuliya Chernova at yuliya.chernova@wsj.com and Marc Vartabedian at marc.vartabedian@wsj.com
