Silicon Valley Bank
SIVB,
-60.41%,
a 40-year-old bank at the heart of the valley’s ecosystem, was forced to shutter Friday after its core depositors — startup companies — took their money out in a shocking bank run, leaving many unanswered questions in the tech world. As the Federal Depository Insurance Corp. put the bank into receivership and created a new bank, Deposit Insurance National Bank of Santa Clara, to pay its insured deposits starting Monday, small companies who have relied on the bank will likely face some ripple effects of their actions, as they tried to protect their funds.
After Silicon Valley Bank announced Wednesday that it disclosed large losses in its secuities portfolio, startup companies began to get warnings from their investors to withdraw their funds. Bloomberg reported that Peter Thiel’s Founder Fund advised companies to take out their money, among many others. “I have seen a lot of the emails from the VCs to portfolio cos, it is unfortunate,” said Samir Kaji, chief executive and co-founder of Allocate, a platform for investment managers and family offices. “But on one hand you can’t blame people for not wanting to take a chance.” Kaji, who worked at Silicon Valley Bank for 13 years before co-founding Allocate, said he believed SVB was not at risk of insolvency before its depositors started the mad digital run on their deposits. He said that the bank, which was entrenched in the startup/VC community, benefited from a very strong community, “which works when it’s going well.” But he said that what happened in the last two days was equivalent to a stampede running out of the building threatened with fire. “But in fear of being the last one out, someone trips on a candle, and sets the building ablaze,” Kaji said. But the recent cash burn at many startups over the past few months in a tough economy and a closed IPO window also were factors in the bank’s woes. “Silicon Valley Bank is arguably a Silicon Valley institution. It has been around for decades, banking with the VC industry and the startup industry for decades,” said Bob Hendershott, associate professor of finance at Santa Clara University’s Leavey School of Business. “And it turned out that was their downfall …