VCs publicly support SVB, but privately urge bosses to bail

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It appears that the same people who are under fire for fueling the bank run that led to the staggering collapse of Silicon Valley Bank (SVB) are playing both sides of the fence, publicly and privately.

Having urged their portfolio companies to withdraw their money from the bank, many venture capitalists are now demanding government support to keep the SVB.

As of press time, more than 600 VC leaders have signed an open letter urging their community to re-bank SVB if it is “appropriately acquired and capitalized.”

“The same VCs who are asking me to sign a letter that says ‘I will work with SVB if the government supports it’ are the same VCs who told me and their other portfolio companies to shut down,” he said. anonymous startup. founder on his blog on the Sifted tech site. “It was a failure through our own fault.”

On social media, founders and top executives are also pointing the finger at scared VCs.

“It’s all because of the panic among investors and startups,” wrote Konstantin Bayandin, founder and CEO, in a viral post.

“The founders and CFOs had no choice,” said the CFO of a major company, who spoke to The Standard on condition of anonymity. “It hurts a lot because SVB was the only bank that provided the startups with the liquidity they needed. The big banks won’t do it.”

Notably, two of the largest firms in the industry, Peter Thiel’s Founders Fund and Andreessen Horowitz, did not sign a letter of support for SVB.

The SVB’s problems can be attributed to the massive influx of deposits at the beginning of the pandemic, triggered by the tech boom, which was then redirected to long-term government bonds.

When the Federal Reserve raised interest rates to fight inflation, the value of those investments plummeted, and this, combined with a sudden slowdown in deposit growth, drove the bank’s share price down.

Then customers and partners got nervous. SVB filed for bankruptcy on Friday after clients reportedly initiated $42 billion in deposits – requests it was unable to meet until U.S. regulators stepped in and took over the bank.

On Sunday, the US Treasury and the Federal Reserve announced that the Federal Deposit Insurance Corporation would provide emergency funding to protect SVB depositors, even if the bank’s shareholders are wiped out in the process.

Varun Badhwar, founder and CEO of Endor Labs, which funded SVB, spoke at length to the Wall Street Journal about the dilemma he faced. Minutes before the bank transfer shutdown last week, he transferred a quarter of his company’s deposits to First Republic Bank, a regional bank that appears to be in trouble.

“My first thought was that this sounds like an overreaction,” Badhwar said of the sharp drop in SVB value.

He said he felt overwhelmed by initiating the transfer from the bank that helped him start two other companies, but was forced to do so because access to that amount of money would have allowed him to meet payroll obligations for the next six to eight months.

Badwar could not be reached for comment after the FDIC takeover.

On Saturday, the FDIC sent out a memo to employees offering them 45 days of employment with a new organization called the National Deposit Insurance Bank of Santa Clara to protect depositors. Employees will receive a pay raise to help with the transition as Silicon Valley banks sell off assets.

A bank shareholder also just filed a federal lawsuit alleging SVB was negligent in its management and oversight.

Meanwhile, the man who heads an agency that specializes in startup advisory said their founders are not paying vendors because of the repercussions.

“Even companies that didn’t fixate on SVB use it as an excuse not to pay,” they said. “That’s the advice they get from venture capitalists.”

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