Update: As of Sunday evening, regulators were working to roll out emergency measures to ensure depositors of Silicon Valley Bank get their money and will have access to funding come Monday, according to the Wall Street Journal. This article originally ran on Friday.
Experts in Pittsburgh's tech community stressed a cautionary approach to interpreting any potential fallout locally as a result of Silicon Valley Bank's collapse on Friday, which is estimated to have managed assets of about 44% of all venture-backed U.S. startups.
According to a report in Bloomberg, the Santa Clara, California-based institution experienced a bank run on Thursday after disclosing a $1.8 billion loss following a $21 billion fire sale of its fixed-income portfolio, which then saw the stock of its parent organization — SVB Financial Group (NASDAQ: SIVB) — fall by about 90%. On Friday, the Federal Deposit Insurance Corp. took control of the now-shuttered bank, and it remains unclear as to how much of its original assets will be returned to its customers.
Justine Kasznica, a shareholder at downtown-based Babst, Calland, Clements and Zomnir P.C. who chairs the law firm's emerging technologies group, said there remains too much uncertainty at the time of this article's publication to interpret one way or the other about how SVB's closure could impact the local startup scene.
"Here's the way I look at it: I think the news articles that I'm reading about this triggering a larger-scale bank run, or some kind of contagion effect — the words that I'm reading — I don't want to speculate on that," Kasznica said. "I think that we have to understand that Silicon Valley Bank was in a unique position as a niche bank, as a specialty services bank, so I think that drawing broader conclusions is not what I want to do right now because it's just too early to tell."
Kasznica, who also serves as an outside general counsel to several unnamed local and nonlocal clients who use SVB, continued: "What I do think, though, is the insulated tech market — this is obviously big news and concerning and the reason for that is that for one, Silicon Valley Bank had made a really good name for itself as a bank that built a business model on offering services to high-risk banking customer and that's their type of industry … and I'm worried it'll send a chilling effect, a more constricting effect on banks willing to lend or do business with early-stage, high-risk technology companies at a time when they need it most."
At a minimum, Kasznica said she expects there will be cash flow challenges "across the board" at tech companies that used SVB for payroll purposes come next Wednesday should the bank not be acquired before then or if all of its assets haven't been properly allocated to permit such transactions to occur. That could then have ripple effects elsewhere, she said.
"If you're a Silicon Valley Bank customer, start looking at your documentation, get in touch with the FDIC to figure out the receivership, to figure out what steps need to be taken," Kasznica said. "Probably, the [$250,000 FDIC] insured monies get paid out first, and those will typically affect the smaller scale participants and then those that have monies above the insurance threshold are the ones that are going to be sort of waiting to see what happens this weekend."
Zach Malone, a partner at downtown-based venture capital firm Magarac Venture Partners, also expressed a similar and cautionary sentiment about reading too much into the ramifications of SVB's collapse.
"I think it's probably early to be able to predict [any outcome] just given so much is happening in real-time, including how this all can be resolved," Malone said. "I've heard twice on calls today with other investors outside of the city where they had portfolio companies [who were SVB customers] — not ours, ours luckily are all in pretty good shape — but now they're saying … while it seems like everything is dire and I would not want to be working in Silicon Valley Bank today, it seems like the big companies, the clients of the bank, I think, will most likely to be resolved without too many problems."
Terri Glueck, the vice president of communications at North Side-based startup investment firm Innovation Works Inc., said some of the organization's portfolio companies bank or have debt financing with SVB, though IW itself does not maintain any assets with the California financial institution.
"We are empathetic with founders and try to be supportive when macroeconomic or other outside forces affect them," Glueck said in an email statement to Pittsburgh Inno. "In this case, we're trying to monitor the situation and pass along helpful information so founders can make good decisions."
