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In the most dramatic banking implosion since the Great Recession, regulators on Friday shut down Silicon Valley Bank, a financial institution popular among venture capitalists and which had relationships with high-profile proptech firms, such as Airbnb, Opendoor, Tomo, Roofstock, OJO and others.
California regulators shut the bank down, while the Federal Deposit Insurance Corporation (FDIC) seized its assets. The shutdown happened as the bank’s depositors began pulling out their money this week, in some cases at the behest of prominent Silicon Valley figures, such as Peter Thiel, ultimately creating a run on the bank.
The real estate community braced for impact as the financial world reacted to the biggest bank failure since the 2008 financial collapse.
To give a sense of just how quickly SVB collapsed, OJO founder and CEO John Berkowitz said on Friday morning that the bank had been an “incredible partner,” and that he planned to stick with the bank despite 48 hours of turmoil.
“Silicon Valley Bank has stood by me as an entrepreneur and my companies through thick and thin,” he wrote. “We will do the same as it’s the right thing and good for the broader ecosystem. If tech lost the banking solutions of SVB it would be a big detriment to all involved.”
Within hours, the FDIC had taken over the bank.
Silicon Valley Bank bet big on the future of proptech companies, calling the opportunity created by firms bridging real estate and technology a “$228 trillion opportunity,” in late 2019.
The firm invested in Opendoor and Airbnb among others in the space. In 2020, investor Keith Rabois credited the bank for the early success of Opendoor.
“Silicon Valley Bank also deserves credit for Opendoor,” he wrote on Twitter. “Without their support in the beginning, it would have been nearly impossible to prove we could value homes successfully via a model.”
Still, the iBuyer was largely insulated from the past week’s uncertainty, the company reported Monday in a newly filed disclosure. Less than 1 percent of Opendoor’s cash and cash equivalents were held at the failed bank, with 98 percent held at the nation’s four largest banks, it said.
Opendoor’s “critical business operations” were not run from Silicon Valley Bank accounts, the company reported. This means that the iBuyer was not subject to the same payroll scare that many startups faced before the FDIC announced it would fully insure all deposits.
The full extent of this week’s collapse might not be known until the coming days, though some observers expected the impact would be widespread.
An executive at the company last year specifically mentioned Opendoor, Roofstock, Homebound, Nomad, Airbnb, and Tomo as proptech companies that were part of its “core area of focus of our investment strategy.”
SVB also did business with Homeward, whose CEO Tim Heyl said he had some money with the failed bank.
“It makes everyone’s life a little more stressful while companies wait to see if funds will be released,” Heyl said. “Fortunately for us we only had a small amount of our funds with them. SVB has always been a great partner to startups, so it’s unfortunate to see this playing out.”
A spokesperson for Side said the company “is in good financial health and has no assets at Silicon Valley Bank, so we won’t be impacted by today’s news.”
Airbnb, Homebound and Tomo didn’t respond to a request for comment on Friday.
Friday’s collapse follows days of tumult for the bank. Amid growing concern about its financial situation, the bank had attempted to raise money and then find a buyer.
Then, shares in the bank’s parent company SVB Financial Group, dropped 60 percent Thursday. Shares dropped another 60 percent Friday during pre-market hours. Trading in the company was halted Friday morning as shares continued to nosedive.
Credit: Google
The bank had about $209 billion in total assets at the end of 2022 and about $175.4 billion in total deposits, the FDIC said in a statement.
“At the time of closing, the amount of deposits in excess of the insurance limits was undetermined,” the statement added.
“All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023,” the agency also said. “The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
Unlike the Great Recession, when failing financial institutions ignited chaos that quickly spread across the economy, there was little concern Friday that the failure of Silicon Valley Bank — which was more concentrated in the technology sector than other banks — would create a broader domino effect, according to the AP.
But some observers still forecast chaos and called for solutions. Billionaire hedge fund investor Bill Ackman, for example, suggested the federal government consider bailing out SVB, given its importance to companies backed by venture capital firms.
“The failure of [SVB] could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash,” Ackman wrote Thursday night. “If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered.”
The failure of @SVB_Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered.
— Bill Ackman (@BillAckman) March 10, 2023
Other observers predicted immediate fallout for the technology workforce. Among them, entrepreneur Brad Hargreaves suggested on Twitter that the bank’s failure would make it impossible for companies to pay staffers, which would in turn lead to “mass layoffs.”
Now they may not be able to make payroll next week. Unpaid wages pierce the corporate veil, so boards are *incredibly* sensitive to employing workers they may not be able to pay.
Expect mass layoffs later today, Monday at latest.
— Brad Hargreaves (@bhargreaves) March 10, 2023
Hargreaves also noted that the situation “is going to have a massive impact on the tech ecosystem” and that the bank was so integrated in the lives of many tech figures that there is now “a whole mess for FDIC (or the eventual buyer) to unwind.”
