What happened?
The Silicon Valley Bank (SVB) said on 8th March 2023, that it was planning to raise $2bn in capital after losses on bonds it sold.
This spooked investors and customers which resulted in the share price drop by about 60% by the next day. This resulted in customers withdrawing cash rapidly resulting in a “bank run”. Share price continued to drop as a result.
According to Claire Lee, ex SVB employee,
This is a comedy of errors; without the comedy.
Time of death: after questionable decisions and clumsy communications, panic ensued on March 9th — then clients withdrew $42 Billion (almost a quarter of total deposits) overnight. Woah.
So the options today, March 10th to find a buyer/find funding, were non-existent.
Forty years. Up in smoke.
Why does this matter?
SVB has been the bank of choice for venture-backed tech companies, investors and Limited Partners (LPs). A failure of the bank means, tech companies will not be able to meet their expenditure obligations from paying salaries to paying for hosting and other expenses. VCs will not be able to invest in tech companies. LPs would not be able to back up VC funds.
If not managed, the situation could result in many tech companies going bust overnight.
According to Claire Lee,
More than 65% of the industry banks with SVB. 80% of the deposits are uninsured. The markets are reeling. Fallout being felt in the US, the UK and China. European banks too. This is just the beginning.
Thousands are anxious, worried and confused. Employees shell shocked. Clients scrambling to make payroll.
Resources:
Roku says 26% of its cash reserves are stuck in Silicon Valley Bank
- Around $487 million, or 26%, of Roku’s cash reserves are stuck at Silicon Valley Bank, the streamer said in a Friday SEC filing.
- Shares fell after hours on the news, but the company believes its remaining reserves will be enough to meet its financial obligations for at least the next 12 months.
Marc Cohen’s advice: get your money out. A bit too late for the advice.
Derek Watson’s advice: Reasons to stick and reasons to pull.