The tremors in Silicon Valley pose a danger of an earthquake, especially for smaller tech companies.
We’re already seeing more attention paid to liquidity within the financial industry, just one day after Silvergate Capital announced it would close and liquidate its bank providing services to the cryptocurrency industry. and how it might affect lesser businesses, which rely on funding to get off the ground and maintain operations.
SVB Financial Group, the parent company of Silicon Valley Bank, sold off a portion of its assets at a loss on Thursday and raised $500 million to strengthen its financial position. As has been widely reported, the firm’s shares fell 60% on Thursday and another 18% in after-hours trading. The business will experience a $1.8 billion loss on the sale of its $21 billion in holdings and securities from the US Treasury.
SVB also announced that it had started an underwritten public offering in which it hoped to collect about $1.8 billion by selling common and preferred stock. SVB will be raising a total of $2.3 billion thanks to one client, General Atlantic, an investment fund, who has also agreed to spend $500 million. The loss on the asset sales is offset by the cash raise.
We are taking these steps because we anticipate higher interest rates to continue, pressure on the public and private markets, and increased cash burn from our clients as they invest in their companies, the company said in a Wednesday update.
The lifeblood for innovative businesses, including FinTech’s, is going to be a little tougher to come by, as those last remarks imply. Naturally, we are discussing money. Venture capital companies and startups, Silicon Valley Bank’s primary clients, have been withdrawing money from their savings accounts. (i.e.., burning through cash). Everyone is being impacted by inflation and increased interest rates.