Some Northeast Ohio tech startups and their backers are wondering whether Silicon Valley Bank's failure will mean the loss of some of the bank's innovations, such as "venture debt."
Like a lot of entities that provide financing to technology ventures, Wendy Jarchow and her colleagues at River SaaS Capital spent the weekend reaching out to managers of client companies to find out whether they were Silicon Valley Bank clients.
"Of our 15 portfolio companies, we only had two that currently had deposit accounts with Silicon Valley," the chief investment officer said.
River SaaS Capital, a portfolio company of TruWest Holdings in Westlake, Ohio, offers loans and supportive services to software-as-a-service startups nationwide, said Jarchow, who has spent most of her career in the venture capital industry. Clients use these loans to start, operate and expand their companies without diluting the equity of owners.
"We were at the ready to make bridge loans to these borrowers just to kind of help them manage the next 30 to 60 days," Jarchow said. "But both of them said [Monday] they didn't need it. They were in a good enough position. It's a big sigh of relief."
But both Jarchow and Ray Leach, CEO of JumpStart Inc., the venture development and investment organization in Cleveland, said the effects of the Silicon Valley Bank failure likely will play out over months.
"Venture capital is a 50-year-old business, and it's continued to mature," Leach said. "There are new products and services that are really helpful to companies, venture debt being one of the most important."
Venture debt is a type of loan offered by bank and non-bank lenders that is designed for early-stage, high-growth companies with venture capital backing, according to Silicon Valley Bridge Bank — the FDIC-run successor to the failed Santa Clara, California, bank.
The vast majority of venture-backed companies raise venture debt, which typically has a higher interest rate and a shorter term than traditional bank loans, Jarchow said.
Silicon Valley Bank was a prominent innovator of venture debt, said Leach.
"Will innovative financing or instruments be impacted by this? I think the answer is yes," said Leach, who also is the founding secretary of Venture Forward, a nonprofit unit of the National Venture Capital Association that aims to advance a more diverse, equitable and inclusive VC ecosystem.
"That could result in startups having less access to capital" and tools such as venture debt, he said. "So, yes, I think that the Silicon Valley Bank failure could have a dampening effect" on innovation in the venture capital industry.
