High-profile venture capital investors are advising their portfolio companies to withdraw funds from Silicon Valley Bank (SVB) after the publicly-traded group said it was having to offload billions in assets to shore up its balance sheet.
SVB said in an investor prospectus for a US$1.8bn share sale, published on Wednesday, that it needed the proceeds to plug a hole caused when the group sold US$21bn in loss-making government bonds.
The news follows the voluntary liquidation of another California-based financial institution, Silvergate Bank, just days previously. Silvergate was also forced to sell Treasury bills for a discount after suffering US$1bn in financial losses throughout 2022.
Peter Thiel's Founders Fund, Coatue Management, Union Square Ventures, Founder Collective and Canaan have all issued warnings about SVB to their affiliates, while Bloomberg reported that venture fund Greenoaks Capital Partners warned its startup founders about potential issues at SVB as far back as last November.
Greenoaks suggested that SVB was having to offer higher, unsustainable interest rates to customers or risk losing clients to rivals.
The warning had shades of collapsed crypto bank Celsius Network, which was also promising unsustainable yields, although SVB has not been accused of malpractice, unlike Celsius.
SVB shares tank
Fears of a bank run tanked parent company SVB Financial Group’s share price on Nasdaq by more than 60% in Friday’s pre-market trades.
Investors are likely spooked at the timing of SVB’s fundraise, coming only days after Silvergate’s demise.
Other major bank shares are also being hit, with Morgan Stanley (NYSE:MS) down 4%, Wells Fargo down over 6% and Citigroup down over 4% in early trades.
SVB's chief executive Gregory Becker has reverted to defence mode, calling clients to assure them their money with the bank is safe, according to people familiar with the matter.
"While VC deployment has tracked our expectations, client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted," Becker reportedly told investors.
"When we see a return to balance between venture investment and cash burn, we will be well positioned to accelerate growth and profitability," he said, adding that SVB is "well capitalised."
SVB shares were trading at a seven-year low of US$106.04 with a market capitalisation of US$5.3bn.