As part of Silicon Valley Bank’s rapid decline, questions swirled about the future of corporate debt and whether startups could access its loans.
Some clarity came Tuesday in a memo from Silicon Valley Bridge Bank, the newly formed company created by regulators to manage the bank.
“We are open for business and hard at work bringing all systems and solutions back online to support you,” wrote Tim Mayopoulos, CEO of SVBB. “We give new loans and fully honor existing credit facilities.”
Silicon Valley Bank was a leading provider of venture debt, a specialized loan typically repaid using future venture capital, helping startups finance their growth and bridge the gap between investment cycles.
US regulators vowed on Sunday to fully protect SVB’s insured and uninsured deposits after the bank’s collapse. However, it was unclear what would happen to existing lines of business debt. Some startups with corporate debt bonds and credit facilities reported losing access to capital or cash flow disruptions.
Tuesday’s update is “tremendous news,” said Aviel Ginzburg, general partner at Seattle VC firm Founders’ Co-op. However, as an investor, he remains cautious given the evolving situation with SVB.
“Would I tell a holding company to prioritize exploring a loan with SVB over another bank right now? Absolutely not,” he said.
In many ways, the situation remains fluid, and the outcome will depend in part on which investors or institutions end up with Silicon Valley Bank’s assets through an auction reportedly underway as part of the FDIC.
Business debt lending has increased. Last year’s second quarter was the second largest quarter in terms of the total value of venture debt over the past decade, according to PitchBook data.
Early-stage founders use venture debt to maintain ownership control and avoid downside risk when cash is raised at a lower valuation than the previous round. It also helps founders avoid selling shares at valuations they expect to exceed in future rounds.
Seattle startups like Lexion, Wrench, Kevala, Docusmart and Icertis have used Silicon Valley Bank for business debt.
Ginzburg said the most difficult conversations he’s had recently have been with startups that have built their models around access to lines of credit. SVB’s collapse coincides with a sluggish venture capital market. Funding to Pacific Northwest startups in the first two months of 2023 is down 80% year over year.
“This is a double whammy that will have reverberations throughout the ecosystem,” Ginzburg said on a special episode of the GeekWire Podcast.
Some tech leaders have expressed concern about the long-term sustainability of corporate debt.
“Many startups are waking up today to find their runway is much shorter than they expected without that business debt,” said former Zillow CEO Spencer Rascoff. Twitter Monday. “Shorter runway = less hiring, less spending, less growth.”
Raskov added: “Business debt is dead. SVB was by far the largest provider of business debt to startups and that product has been dead for a while.”
SVB participated in at least 75 funding rounds last year, mostly focused on corporate debt. That amounted to about $6 billion spent, according to data from Crunchbase and PitchBook. The bank has nearly $15 billion in corporate debt as part of its assets, PitchBook reported.
Some experts believe that these loans will be transferred to the ultimate buyer of SVB, similar to the process when a mortgage lender goes bankrupt and is taken over by a new bank. Existing business debt facilities and other lines of credit will likely remain intact until they expire, experts said.
It is uncertain whether the buyer of SVB will continue its corporate debt lending activities to the same extent as SVB.
But anyone who buys SVB’s loan portfolio can keep the business debt business, using it to boost its technology exposure, said Matt Wang of Pioneer Square Labs.
“Maybe someone else will step in and be just as competitive,” said Hope Cochran, managing director of Madrona Venture Group. “But if things like [venture debt] they’re not as available, you just think about your cash differently.”
Minh Le, the longtime market manager for Silicon Valley Bank’s Washington and Western Canada region, told GeekWire in January that the bank was seeing “as much velocity as I’ve seen in the last decade” from entrepreneurs.
“I am very sorry for how things have turned out and the uncertainty you are now facing and the impact on your work,” Le wrote. LinkedIn this past weekend.
A quote from an article on Silicon Valley Bank’s website now comes with a tinge of irony, given the events of the past week.
“Many players come and go in the business debt market, so make sure whoever you’re talking to is a player for the long haul,” the article states. “When a bank decides one day that they are no longer interested in lending business debt, it can wreak havoc on your business.”