Startups and investors look to fill a big void after SVB’s demise

Tech and biotech startups will be looking to replace failed Silicon Valley Bank not just as a place to deposit cash but also to help raise new money.Philip Pacheco/Bloomberg

For Boston’s startup community, the sudden failure of Silicon Valley Bank could hardly have come at a worse time. Cratering tech stock prices and rising interest rates have put a squeeze on funding for startups, and venture capital deals were already down by more than 40 percent in 2022.

Silicon Valley Bank was not only willing to work with startups to help them raise money, it also extended credit directly, funded research about emerging companies, and held events promoting the market.

“They have been a core partner to the entire innovation economy,” Katie Rae, chief executive of MIT-affiliated investing firm The Engine, said. “They understand these types of companies and they understand the kind of banking and risk capital that’s needed.”

Fernando Rodriguez-Villa, chief executive of Boston startup AdeptID, was at an SVB-sponsored networking event on Thursday, just as questions about the bank were roiling the market. AdeptID didn’t bank with SVB, but Rodriguez-Villa attended the gathering, a ski day at Mount Sunapee in New Hampshire, to get out of the office and make new connections.

At lunch, the SVB employees tried to calm the waters, citing the number of Wall Street analysts who favored the company’s stock. It didn’t work. “By the end of the day a lot of people were getting calls from investors,” Rodriguez-Villa said. “And a bunch of the group were investors trying to figure out their exposure.”

Even without a banking relationship, he is not looking forward to a startup world without SVB. “This feels like the next domino after tech layoffs and the crypto crash,” Rodriguez-Villa said.

What happens to SVB’s billions of dollars in loans and lines of credit to startups and VC funds remains unknown. A future acquirer of the bank’s assets could continue the lending or curtail the loans. SVB had $5.5 billion of loans related to early-stage companies, according to a report released by PitchBook on Tuesday. The total “is large, but it is a drop in the bucket of the total capital that makes it to VC-backed startups on a yearly basis,” the research firm noted.

The market opening could be enticing to some new players, as SVB made more than $1 billion in gains on warrants it received from startups as part of its lending activity, far more than it lost on bad debt, PitchBook said.

Some startups are already considering new sources of borrowing that they uncovered over the weekend when it seemed their deposits at SVB might be frozen for a while. California fintech Brex Inc., a startup-oriented new bank, is looking to make inroads after SVB’s demise, one venture capital investor said. Some hedge funds also made offers to lend money over the weekend, but on onerous terms that startups likely wouldn’t consider with the immediate crisis past, the VC said.

Katie Rae, for one, remains optimistic that new support will emerge to fill the void. “We work in the innovation economy,” she said. “People are going to be thinking about all that Silicon Valley Bank did and how to fill that and even make it better.”