Mar 10, 2023
SVB Rocks California as Rich Founders Join Napa Vintners in Fear
(Bloomberg) -- The shocking collapse of Silicon Valley Bank rippled across California Friday to industries far beyond the technology community that it played a major role in shaping.
From wealthy founders to Napa vineyard owners, clients were scrambling to secure funds or find out basic information about what would happen to their deposits. Anxious customers formed lines outside branches across the Bay Area and fears grew that some companies will struggle to make payroll next week.
The sudden implosion — the worst bank failure since 2008 — delivered a deep blow to a Silicon Valley ecosystem already struggling with a rapid tech downturn, thousands of layoffs and the lingering economic effects of the Covid-19 pandemic. In a region that exploded over the past decade to generate massive wealth and become an engine of economic growth, the bank had extensive and far-ranging roots.
“The reach into Silicon Valley is at the high level,” said Louis Lehot, a partner at Foley & Lardner, a law firm that advises startups and public companies, who said thousands of bank clients will be affected. “It’s deep and broad at all levels of the ecosystem from big companies to startups to VCs, private equity firms and everything in between.”
The bank, headquartered in Santa Clara, is most known for its financing in the venture capital community. But it also offered mortgages, personal credit lines and other private banking services for people who were serial entrepreneurs. For private equity firms, the bank was an active provider of subscription lines — a type of loan facility the funds can draw on to ease capital calls. And it was a prominent lender to Northern California’s wine industry, with locations in the vineyard areas of Napa and St. Helena.
See also: SVB Spectacularly Fails After Unthinkable Heresy Becomes Reality
The company helped forge deep ties in Silicon Valley by regularly sponsoring tech happy hours and events hosted by venture capitalists and startups, where its logo was featured prominently. The bank even sponsored a dinner at the South by Southwest festival in Austin, Texas, on Thursday evening, as the company was in the thick of its turmoil.
The collapse is “pretty seismic,” said Nate Blair, a partner at Palo Alto Wealth Advisors, which has about $400 million under management. “If you’re a meaningful VC player in Silicon Valley, you most likely have a relationship with SVB. Their whole business model was making sure relationships were deep and multifaceted.”
California Governor Gavin Newsom said his office and the state Department of Financial Protection and Innovation have been in close contact with federal regulators. San Francisco Mayor London Breed called the bank failure “extremely concerning for our local and regional economy” and said her office is monitoring impacts on the city and business community.
“The city is very focused on our downtown recovery, and we know there are going to be significant challenges like this ahead of us that could really threaten our economic outlook,” she said in an emailed statement.
At Silicon Valley Bank’s headquarters, dozens of customers lined up in the rain to read a closure notice. Many had come to ask questions about their company’s accounts. Adrian Soo, who works for a robotics company, said his boss had asked him to see what was happening after vendors’ checks didn’t clear.
“My boss called this morning from India and said everything was frozen and asked me to come down and check,” Soo said.
The crowd’s anger briefly turned to laughter when a Brink’s cash deposit van turned up and had to wait to be let in. The driver left with a bag that looked as empty as when he arrived.
Inside the bank’s office south of Market Street in San Francisco, security had taped a sign to the lobby desk that instructed those with corporate accounts to head to the bank’s branch on Sand Hill Road in Palo Alto.
Rippling, a payroll-services provider, said that some payments were stalled because it worked with SVB on processing. The company is switching that business to JPMorgan Chase & Co., but there are some ongoing delays, Chief Executive Parker Conrad said on Twitter. Payroll funds processed for today’s check date were debited from clients earlier in the week, and are currently stuck with SVB, he said. Rippling extended its own collateral to fund the payments, he said, and employees should see funds by Monday morning.
In wine country, much of the industry woke up on Friday morning to shock, according to Mike Haney, executive director of the 250-member Sonoma County Vintners trade group. Silicon Valley Bank, in its latest annual report, described itself as one of the top providers of financial services to premium wine producers, mostly in California. The premium wine industry accounted for about $1.2 billion, or 1.6%, of the bank’s total loan portfolio as of Dec. 31
“My phone started going off at 6 this morning; it came out of the blue,” Haney said. The association itself did some of its banking with SVB, which had a solid reputation as a supporter of local charities and sponsor of community events, he said.
The Federal Deposit Insurance Corp.’s swift intervention has calmed down some of the winery clients that Haney has spoken to, giving them time to regroup over the weekend on how to handle their finances once the bank reopens on Monday, per the banking regulator’s guidance. “The unknown is the big fear,” said Haney. “So once we saw the FDIC come in, it’s giving everyone a chance to catch our breathe for a second.”
Quicktake: What SVB’s Failure Means for the Bank and Its Clients
Silicon Valley Bank also had been an important supporter to cleantech and innovative agriculture firms — including some of the biggest names in solar and agriculture. It highlighted Sunrun Inc., for instance, as one of its success stories, with a web page specifically about the company as a financing case study.
Sunrun shares fell 12% Friday. In a statement, the San Francisco-based company said Silicon Valley Bank is one of its credit lenders and that it has less than $80 million in cash deposits there.
Even as other industries reeled, it was the startup community that was hit hardest. Investor Kavita Gupta lamented the closure on Twitter, calling it the “most innovative entrepreneurial bank.”
“It’s a sad day for the whole banking sector, for US regulators and especially for entrepreneurs,” she said.
At the bank’s Sand Hill Road branch, Sarika Bajaj, the chief executive officer of an early-stage startup called Refiberd, said she’s been a customer of Silicon Valley Bank for three years and kept most of their funds there. She said she had tried to make withdrawals Friday morning, but was unable to do so.
“They’re saying some funds are going to be released by Monday,” she said, noting that she is concerned about payroll.
Refiberd, which focuses on textile recycling, had raised seed funding in January and Bajaj said they were going to use the capital for hiring more people, but have now paused those plans and will delay purchasing some essential equipment.
She chose to do business with Silicon Valley Bank because she wanted to show her investors her company was legitimate. She had been extremely happy with the bank over the past year after getting a new account manager.
“It was the best it’s ever been and then the world ended,” she said.
Meanwhile, fears of contagion to other parts of the banking industry spread around the area. Lines formed at San Francisco-based First Republic Bank branches as some clients sought to withdraw money. The bank said Friday that its liquidity position “remains very strong” and it has a “very well diversified” deposit base.
--With assistance from Esteban Duarte, Brian Eckhouse, Katie Roof, Malathi Nayak, Sarah McGregor and Karen Breslau.
(Updates with comment from governor and San Francisco mayor in eighth paragraph.)
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