Now, startups need other banks to take on SVB’s role.
“With [SVB] going away and not being available when the next startup needs capital, there’s less competition and less availability, and that’s not good,” said Steve Greenfield, CEO of Automotive Ventures in Georgia.
A March 14 analysis from investor website PitchBook referred to SVB as “an integral piece” of the venture capital ecosystem that was the bank of choice for nearly half of the US technology and life sciences market. It was the lender to many venture capital-backed startups and served as a short-term financier to venture capital and private equity funds through capital call lines of credit.
Without SVB, the venture market faces greater pressure on top of the slowdown in financing over the past year, PitchBook said. The firm said the bank failed after quarterly the invested capital dropped 60 percent and the deal count fell 25 percent.
The analysis concluded that the “reallocation of resources and banking that may need to be done will only add to a slowdown in a financing market that was looking set for another soft quarter” in the first three months of this year.
Startups were already facing challenges before SVB collapsed, said Daniel Hoffer, a managing director of Autotech Ventures in Menlo Park, Calif.
“Between the market downturn, interest rates hikes, the war in Ukraine and COVID, startups have been buffeted by hurricane force winds that they never had any ability to control or even influence,” Hoffer said. “The developments at SVB were just the latest unpredictable event that could have posed an unexpected and existential risk to startups.”
While venture capitalists are still making deals, other forms of funding could take a hit, Hoffer said.
“The most likely impact may be that the terms under which startups can access venture debt and other loans will become more onerous, since SVB has traditionally offered the most startup-friendly terms,” he said.