Silicon Valley Bank Uncertainty Makes Tech Industry Panic | CNN Business

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The technology industry, already on the brink of widespread layoffs in an uncertain economy, plunged into panic over the past 24 hours as moves by a major Silicon Valley lender sparked a sharp sell-off on Wall Street and raised fears of ‘a rush in the market. bank

Several startups are said to be considering pulling their money out of Silicon Valley Bank this week amid liquidity problems, according to media reports and public postings by venture capitalists. Other prominent figures in the startup community are urging caution to avoid fueling what one venture capitalist called “mass hysteria” that could further destabilize a financial institution that has long been a key partner in the technology industry.

Shares in SVB Financial Group fell 60% on Thursday after the prominent technology lender told investors it had to sell stocks and a portfolio of US Treasuries to cover falling customer deposits. Shares were halted Friday morning after falling more than 60% in premarket trading.

The bank is now reportedly in talks to sell itself after failing to raise additional capital, while some, including billionaire investor Bill Ackman, are suggesting the government should consider a bailout. (Representatives for the bank did not immediately respond to a request for comment.)

Uncertainty at Silicon Valley Bank spilled over into bank stocks on Thursday, raising fears of a contagion risk to the broader financial industry. But there were also more immediate concerns in Silicon Valley, as the bank has partnered with nearly half of the tech and healthcare companies in the United States.

Founders Fund, an influential venture capital firm founded by billionaire Peter Thiel, advised its portfolio companies to take money out of the bank. (A representative for Founders Fund declined CNN’s request for comment.) Tribe Capital, meanwhile, urged companies to consider where they keep their money and how they raise funds.

“Any bank with a business model is dead if everyone moves,” Tribe investor Arjun Sethi wrote in a note to founders, which he shared at Twitter. “Because risk is non-zero and cost is different, it’s better to diversify your risk, if not all of it.”

Sethi urged founders to “keep your assets in the more liquid traditional banks and not take unnecessary risks.” He also recommended that founders “call in all debt lines, close all primary rounds, do it now and be willing to make concessions.”

Other prominent venture capitalists called for calm in an apparent attempt to avoid fueling panic. Mark Suster, a partner at venture capital firm Upfront Ventures, urged members of the VC community to “speak up publicly to calm the panic” surrounding Silicon Valley Bank, saying in a lengthy Twitter thread that “the classic ‘runs on the bank’ hurt our entire system.”

While urging people to remain calm, however, he added: “I know some have already withdrawn money. I know some are advising it. I know it’s scary… What matters is that we don’t have or create mass hysteria “.

Villi Iltchev, partner at Two Sigma Ventures, similarly said his peers should “support” the bank. “SVB is the largest provider of capital for technology startups and the largest supporter of the community,” he said in a tweet. “Now is the time to support them.”

The rapidly unfolding fallout from Silicon Valley Bank comes at a difficult time for the tech industry. Rising interest rates have eroded the easy access to capital that helped fuel the rise in startup valuations and funded ambitious, money-losing projects. U.S. corporate funding fell 37% in 2022 compared to the previous year, according to data released in January by CBInsights.

At the same time, broader macroeconomic uncertainty and fears of recession have caused some advertisers and consumers to cut back on spending, shrinking the industry’s revenue generators. As a result, the once-high-flying tech world has fallen into a steep cost-cutting season marked by mass layoffs and a renewed focus on “efficiency.”

The situation at Silicon Valley Bank may have worsened as more startups feel strapped for cash and need to withdraw funds. Now, the bank’s problems risk exacerbating the industry’s cash crunch and wider turmoil.

In his post suggesting a bailout may be necessary, Ackman said a “failure” of Silicon Valley Bank could “destroy an important long-term driver of the economy, as VC-backed companies rely on SVB for obtain loans and maintain their operating cash.”

Ackman compares SVB’s situation to Bear Stearns, the first bank to collapse at the start of the 2007-2008 global financial crisis. But this time, the problem is happening in Silicon Valley’s backyard.

– CNN’s Allison Morrow contributed to this report.