Silicon Valley Bank (SVB) was known as the “financial partner of the innovation economy” before its sudden collapse in March 2023. It worked closely with many VC-backed startups and tech companies, providing financing and banking services. When SVB failed, it sent shockwaves across Silicon Valley and the broader banking sector. Many major investors and clients were severely impacted. According to reports, SVB’s assets nearly doubled in 2021, as the bank poured large deposits into long-term US Treasuries and mortgage-backed securities. However, when the Federal Reserve started aggressively raising interest rates, these bond investments suffered huge losses. This sparked a run on the bank as depositors rushed to withdraw funds. SVB was forced to sell assets at steep losses to raise cash, ultimately leading regulators to shut it down.
SVB’s major shareholders and investors saw billions wiped from market value
As SVB’s problems became apparent, its stock plunged over 60%, wiping out billions in market valuation. Top shareholders like BlackRock, The Vanguard Group, and Vulcan Value Partners suffered the largest losses. Many banks and financial stocks also declined sharply amid fears of contagion effects on the banking system. Fintech firm BlockFi and crypto bank Silvergate Capital also had significant funds trapped at SVB.
90% of SVB’s deposits were uninsured, concerning major clients
While deposits under $250,000 are insured by the FDIC, around 90% of SVB’s deposits exceeded that threshold in December 2022. This meant the vast majority were uninsured. Many major startup and VC clients had concentrated cash balances at SVB. For instance, crypto firm Circle had $3.3 billion in reserves stuck there. There are concerns over if and when clients will get back those uninsured deposits in full.
Payroll disruptions impacted employees at many tech startups and VCs
With SVB suddenly shuttered, many tech and VC firms faced payroll issues as cash was trapped. According to reports, a third of Y Combinator’s portfolio companies will be unable to pay employees over the next month due to funds held at the failed bank. Such unexpected payroll disruptions create major headaches for cash-strapped startups.
Withdrawal restrictions prevented clients from pulling funds
As panic spread, SVB’s CEO urged clients not to withdraw funds prematurely. But regulators soon placed restrictions preventing depositors from pulling any additional money, locking in balances. This severely impacted startups needing capital infusions to cover expenses like server costs, vendor payments, and more.
The collapse of Silicon Valley Bank sent shockwaves across the tech sector as major investors and clients suffered fallout. Billions in funds remain trapped as stakeholders face a long and messy recovery process.