The tech and biotech sectors are grappling with the implications of the collapse of US-based Silicon Valley Bank (SVB; Nasdaq: SIVB), which specialized in working with the tech and biopharma venture capital sectors. The bank was seized by the US government’s Federal Deposit Insurance Corporation (FDIC) on Friday, March 10, 2023, following a run on deposits, marking the second largest bank failure in history.
FDIC’s Response and Deposit Management
The FDIC has created the Deposit Insurance National Bank of Santa Clara to manage SVB’s assets. On Sunday, March 12, the FDIC announced that insured depositors would have full access to their deposits from Monday. However, over 90% of SVB’s depositors had balances above the USD 250,000 insurance limit. The FDIC has promised an advance dividend within the next week and a receivership certificate for the remaining uninsured funds, with potential future dividends as SVB’s assets are sold.
Timeline and Impact on the Industry
Founded in 1983 in San Francisco’s Bay Area, SVB became the leading bank in the venture capital sector, supporting emerging tech firms. As of the end of 2022, SVB had USD 209.0 billion in total assets and USD 175.4 billion in deposits, with healthcare/life sciences firms accounting for 12% of deposits and 46% of the firm’s USD 168 billion in off-balance sheet balances.
The recent slowdown in venture capital funding put pressure on SVB, leading to increased cash burn and reduced deposits. On March 8, SVB Financial announced plans to raise USD 1.75 billion via a share sale after incurring a USD 1.85 billion loss on the sale of its securities holdings. This triggered a withdrawal of funds by several venture capital firms and their portfolio companies, leading to the bank’s closure by the California Department of Financial Protection & Innovation.
Global and Biotech Impact
SVB was a banking partner to about 50% of all venture capital-backed technology and healthcare companies that listed on stock markets in 2022. Its collapse will likely make startup funding scarce and may lead to a slowdown in investments and deal-making as companies adopt a more cautious approach to risk. However, it could also create opportunities for mergers and acquisitions among cash-strapped biotechs.
Fineline Info & Tech data indicates that SVB and Leerink have participated in numerous investments in China-based biotech, medtech, digital health, and IoT companies. Hong Kong and Shanghai-listed biotechs, such as BeiGene and Zai Lab, have reported significant exposure to SVB, with uninsured cash deposits accounting for a portion of their total cash holdings.
Industry Response and Future Outlook
Hundreds of venture capital and private equity firms have deposited billions with SVB. Sequoia and other China-linked VC/PE firms have expressed willingness to continue working with SVB under new ownership if the FDIC finds a buyer. The industry will closely monitor how the FDIC manages SVB’s closure in the coming days, as the loss of deposits could have significant repercussions for the tech and biotech ecosystems.-Fineline Info & Tech
