The thing about a bank run is that it doesn’t really matter if a financial institution's books are strong or not. What matters is what customers believe about their books.
There’s a lot of mud being thrown around at SVB, such as whether its securities investment exposure was too high and whether its communication about rebalancing its assets was too thin.
For its part, SVB claims it is sitting on around $180 billion in liquid assets, and it is telling venture investors it is “well-capitalized.”
None of that really matters if SVB customers aren’t convinced. And by the looks of the last 24 hours, founders and venture capitalists may not be so sure. Consequently, SVB has a pretty harrowing task ahead of it this weekend: Convince its 50% share of the startup industry, as well as its slew of venture and private equity fund customers and entrepreneurs it banks, to sit tight and trust that this isn’t going to be 2008 all over again.
That might be a tall order. As we, Anne Sraders, Jessica Mathews, and Kylie Robison, reported, the last 48 hours have been a mess:
Silicon Valley Bank—one of the most prolific lenders and banking institutions in the private market ecosystem—announced [on Wednesday] that it was selling off securities and seeking to raise billions in a public share sale to cover steep losses on its balance sheet. Shares of Silicon Valley Bank crashed by roughly 60% in regular trading on Thursday, while the bank’s tech clients scrambled to figure out whether to withdraw their deposits, sparking concerns of an old-fashioned bank run.
Six venture capital investors spoke with Fortune, most of whom say they spent all of Thursday on the phone with founders, reassuring them, sifting through legal agreements, or advising them on where to park their money.
“I’ve easily spoken to 70 of them today,” one venture investor, who asked to remain anonymous, told Fortune. “It’s a massive f***ing shit show. Silicon Valley Bank is like a top 20 bank. It’s the leader of tech banking, so I don’t know how this lands, but it doesn’t smell good right now and there’s a lot of panic.”
Another VC who was at an investor conference on Thursday said that “all the VCs phones are going off the hook.” The investor said that their portfolio company founders are pulling out money and that their advice is to put “6-12 months cash burn somewhere else safer” in case the bank goes insolvent.
Amid the havoc, competitors are hunting for scraps. Corporate card fintech Brex tweeted Thursday that “For founders concerned with the stability of their banking provider, we are working to fast track new @BrexHQ Business Account applications.” Meanwhile, JPMorgan reportedly tried to convince some SVB customers to move their funds over.
One founder told us that they were pulling money out of SVB, and planned to take more out today, although they reported issues logging into the bank’s website on Thursday. But some VCs told us that worries about how dire SVB’s balance sheet is are overblown, though as one remarked, “once you say, ‘please don’t panic,’ you’ve lost the plot."
SVB is working on the transaction it announced earlier this week: selling $1.3 billion in common stock, plus a $500 million stock sale to PE firm General Atlantic in what it says will help the bank take advantage of higher short-term interest rates, lock in funding costs, and enhance profitability.
Meanwhile, some venture investors speculate a different future for the company: that it might get bought by a JPMorgan or a Bank of America. “I don’t believe this will be an independent company by next week,” one VC predicted.
You can read our full story–with lots of analysis and insights—here.
Have a great weekend,
Anne Sraders and Jessica Mathews
Email: anne.sraders@fortune.com and jessica.mathews@fortune.com
Submit a deal for the Term Sheet newsletter here.
Jackson Fordyce curated the deals section of today’s newsletter.
