Why I told my PortCo’s to Pull Their Capital from Silicon Valley Bank
Wednesday night SVB told its shareholders that they were to sell off a large package of long-term treasuries that incurred a $1.8B loss while also having to raise 500M from General Atlantic to provide more cash to fund operations. This is because their business has slowed because of the liquidity crunch.
SVB’s business model is to provide credit to venture-backed companies. The problem is that, in most cases, these credit facilities accompany venture equity financing. As a result, financings are down in the venture world, directly correlating to how many loans SVB can execute.
These facts, accompanied by crypto bank Silvergate filing for bankruptcy, put Wall Street in a tizzy, creating a sell-off on Thursday of 60%+ on Thursday and an additional 20% after hours. Peter Thiel didn’t help when he wrote a public article telling all his portfolio companies to pull their capital out of the bank.
I made some calls and heard the same narrative from several well-respected firms.
I will first say this sucks for SVB. They are a great institution and serve as a pillar in the startup community. They hire A++ individuals that help foster the communities in which they operate. This was not poor balance sheet management but a series of events that caused an uproar.
After speaking to several of my contacts within the bank, they showed me how solvent they are; they are offering sweep accounts, etc. If everyone takes their money out, I don’t want my portfolio holding the bag. All my SVB contacts ultimately say, “we get it.”
Keeping Money in SVB:
Risk: Lose all capital (FDIC will not insure your total amount), not to mention years of your life.
Reward: You save time and energy; your contacts will never forget how you stood by them.
Pulling Money out of SVB:
Risk: An hour out of your life, a $12 wire fee
Reward: All capital intact
The logic is pretty straightforward. I will tell everyone that the second SVB is on stable financing footing and its stock price normalizes; I will be the first to recommend that everyone transfers their capital back. SVB has the best brand, people, and products in the business.