Silicon Valley Bank claimed to bank nearly half of all venture-backed companies last year, but only 16% of Orlando-based DeepWork Capital LLC's portfolio companies banked at the Santa Clara, California-based financial institution that collapsed Friday and was taken over by regulators.
DeepWork didn't bank with Silicon Valley Bank, and its portfolio companies that did faced only "minor" issues because they also banked elsewhere, DeepWork General Managing Partner Ben Patz told Orlando Inno.
Still, Patz said there are concerns over what DeepWork and other venture capital firms don't know, such as which co-investors and customers used Silicon Valley bank — and how they may be affected by the bank's collapse.
While Silicon Valley Bank is less entwined with Central Florida's startup ecosystems than tech hubs on the West Coast and in the Northeast, the second-biggest bank failure in U.S. history stands to disrupt the startup community and cause turmoil in the public markets. Silicon Valley Bank was owned by SVB Financial Group, which traded on the Nasdaq exchange until Friday morning, and the bank had $209 billion in total assets and about $175 billion in total deposits at the end of the year.
Meanwhile, none of the portfolio companies of venVelo II, a venture fund operated by Orlando-based venVelo LLC, were affected by Silicon Valley Bank collapse, said CEO Richard Licursi. VenVelo focuses on early-stage companies that typically are too young to go after the debt financing deals and lines of credit offered by Silicon Valley Bank, Licursi said.
Licursi said the greatest threat to the local early-stage startup community is the ongoing upheaval in the stock market. "While I believe the fall of SVB will have a bit of a detrimental effect on early-stage companies here in Central Florida, the larger impact will come from the turmoil we have been experiencing in the public markets. The down draft from the public markets creates a similar contagion for the venture world. As investors pull back from these markets so also do they retreat from investments in early-stage companies. The venture capital funds with strong capital reserves, like venVelo, now have a significant advantage when making new investments."
Although Orlando-area companies raised a historic amount of venture capital in 2022, local startup investors since last year have warned the venture ecosystem would be much slower this year.
It's unclear how many Central Florida companies banked at Silicon Valley Bank, though about a dozen local businesses relied on the bank for Paycheck Protection Program loans in 2020 and 2021.
That included Orlando-based autonomous vehicle technology company Luminar Technologies Inc. (Nasdaq: LAZR), though the company paid back the $7.8 million loan in 2020, according to a U.S. Securities and Exchange Commission filing. Luminar released a statement that the company has "taken a thoughtful approach to risk management and has no material assets or material financial exposure with Silicon Valley Bank."
Here's a closer look at what's happening with Silicon Valley Bank and what ripple effects it has generated across the U.S. economy.
U.S. government promises to protect Silicon Valley Bank deposits
Customers with deposits at Silicon Valley Bank will be able to access their entire deposits on Monday, U.S. officials announced Sunday night, though the government still is seeking a buyer for the bank's assets.
The move will ensure that many of the region's startups and tech companies get access to their full deposits in a timely manner, San Francisco Business Times reported. U.S. regulators invoked a provision of banking law that allows the government to insure all deposits — not just the initial $250,000 typically insured by the Federal Deposit Insurance Crop. — citing a systemic risk to the banking system if they do not.
The officials stressed that no taxpayer money will be used; the deposits will be covered by a special $100 billion fund set up after the financial crisis that banks pay into.
Silicon Valley Bank leadership ousted
Senior management at Silicon Valley Bank has been removed, the U.S. Department of the Treasury, Federal Reserve and FDIC announced in a joint statement March 12.
Meanwhile, the FDIC has created the Deposit Insurance National Bank of Santa Clara (DINB) as receiver.
HSBC Holdings PLC agreed to buy the British arm of SVB Financial Group for just over $1, but there was no word early on Monday about progress on finding a buyer for its U.S. business.
Other U.S. banks take a hit
After Silicon Valley Bank's failure Friday, New York-based Signature Bank was closed by regulators Sunday. U.S. officials said they will take a similar approach to the deposits of Signature Bank as it did with Silicon Valley Bank. In both cases, shareholders and some unsecured debt holders of the bank will not be protected.
Signature Bridge Bank opened its doors Monday as a successor to Signature Bank. Signature Bridge Bank is operating with all of the deposits and substantially all of the assets of Signature Bank.
Meanwhile, San Francisco-based First Republic Bank shares (NYSE: FRC) cratered by a record 67% to open Monday morning, and trading in the shares was halted after the declines. First Republic announced on Monday that it has further enhanced and diversified its financial position through access to additional liquidity from the Federal Reserve Bank and JPMorgan Chase & Co. The total available, unused liquidity to fund operations is now more than $70 billion.
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