![]() ![]() It will also be incumbent on PE firms to better manage counterparty risk, including how they assess and control risk at the portfolio company level. On top of that, they’re getting peppered with questions from their LPs about the treasury and cash management risks and controls within their portfolios, and whether portfolio companies have sufficiently diversified banking relationships.Ĭertainly, private equity firms will need to be more careful and better understand cash management and treasury risk controls at the portfolio company level to prevent SVB-type situations from occurring in the future. ![]() Now they too are wrestling with the question of what to do next. Most PE firms that I’ve spoken to recently had at least one portfolio company at SVB. It’s also private equity firms and their portfolio companies. It’s not just VCs that are impacted by the fall of SVB. In the short term, VCs may start getting creative and offer bridge loans to their portfolio companies to help them make it to the next funding round. And that’s assuming those VC firms are even willing to put in additional capital. In the end, entrepreneurs may be looking at further shareholder dilution, especially if the financing gap left by SVB has to be filled by VC firms themselves. I expect it will become more difficult for startups to find private debt at a reasonable cost, which will be a further drag on the VC market. ![]() Some non-bank lenders that have been thinking about entering the venture debt arena might see SVB’s demise as an opening on the other hand, they might see it as a red flag and reassess their plans. Despite the abundance of private credit available, only a small fraction is allocated to the venture market. It’s possible that some non-bank private lenders will expand their presence in the venture debt sector and fill the void left by SVB. This may cause severe operating difficulties until alternate financing, if possible, can be secured. There is another immediate issue in that while deposits are available, the lines of credit the companies relied on are not. In fact, the loss of a major lender like SVB could crimp dealmaking overall. As a result, many will have to look elsewhere for capital, which ultimately could slow innovation and growth for startup companies. Specifically, with the loss of Silicon Valley Bank, there will be much less venture debt financing available for early-stage startups. ![]() Thanks to SVB, venture-backed companies were able to take on venture debt at a reasonable cost without adding further shareholder dilution. SVB was one of the biggest lenders to startups, and its disappearance will severely limit that tap. One of the most immediate will be a difficulty among startup companies to access capital. The SVB collapse will have far-reaching impacts. It will become prudent, indeed necessary, for companies to learn from the SVB disaster and maintain banking relationships with multiple institutions to ensure diversification and limit counterparty risk. That’s why, going forward, I believe cash management and treasury risk should become boardroom issues for all companies. The fact that some tech companies had nearly all of their liquid capital tied up in SVB – and that their VC and PE backers allowed this to happen – is mindboggling. Predictably, panic ensued among SVB depositors.īut some blame should be hung on depositors as well. One bank insider criticized SVB management for publicly announcing, in one salvo, the triple whammy of a $1.8 billion loss, a hope to raise $2.25 billion in capital, and a plan to sell $21 billion in assets. In the aftermath of SVB’s implosion, a lot of blame was hung on its executives. venture-backed tech and life sciences businesses had some sort of relationship with the bank. SVB itself has said that more than 50% of U.S. It also offered a variety of services to venture and PE funds themselves, such as subscription line agreements – lines of credit for capital calls secured against the limited partner commitments in a fund. It provided venture debt to pre-profitable venture-backed companies at reasonable rates. That’s partly because SVB played a critical role in those communities, serving as a one-stop shop for the VC and PE markets. The collapse of Silicon Valley Bank sent shockwaves through the venture capital and private equity communities. Silicon Valley Bank: Takeaways for venture capital and private equity ![]()
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