Silicon Valley Bank, a well-respected financial institution that has served the venture capital community for 40 years, collapsed on Friday after a wave of panic-induced withdrawals from investors.
The bank had announced on Wednesday that it needed to raise $2.25 billion to shore up its balance sheet, but the sudden need for fresh capital sparked concerns among investors that a bank run could pose an existential threat to startups that couldn’t access their deposits.
By the end of Thursday, customers had withdrawn $42 billion of deposits, leaving the bank with a negative cash balance of $958 million. Regulators subsequently seized the bank’s deposits in the largest U.S. banking failure since the 2008 financial crisis and the second-largest ever.
The role of the tech investing community in triggering Silicon Valley Bank’s collapse is being heavily criticized, with prominent funds such as Union Square Ventures and Coatue Management instructing their startups to withdraw their funds from the bank. The panic was heightened by social media, leading to a self-fulfilling prophecy that ultimately led to the bank’s collapse.
The fallout from Silicon Valley Bank’s collapse is expected to be far-reaching, with concerns that startups may be unable to pay their employees, venture investors may struggle to raise funds, and the sector may face a deeper malaise. The collapse is seen as the latest fallout from the Federal Reserve’s most aggressive rate-hiking campaign in four decades.
Insured deposits are expected to be available as early as Monday, but the majority of deposits held by Silicon Valley Bank were uninsured, leaving their timeline for retrieval uncertain. The collapse of the bank has left members of the venture capital community reflecting on the lessons learned from its demise and the role they played in triggering the panic.