A major sell-off in shares of Silicon Valley Bank, an important financial institution for start-ups, shook the tech community Thursday, increasing concerns from start-up founders and venture capitalists that the tech industry’s economic situation will continue to get worse in the coming months.
Sell-off in Silicon Valley Bank shares prompts fears across tech industry
“I am hearing from dozens of founders about what to do at SVB,” Howard Lerman, the co-founder of business software company Yext, said on Twitter. “It’s an all out bank run.”
Silicon Valley Bank is federally insured, meaning that even if it cannot pay its depositors, they will get some money from the government. A spokesperson for the bank did not immediately return a request for comment late Thursday.
Over the last year, share prices for tech companies have cratered as high interest rates and concerns about the economy cut into the amount of money available for investment in big tech projects and start-up funding. Both big and small companies have laid off tens of thousands of workers, though most companies are still making money and growing, and concerns are far lower than they were during the dot-com crash or the financial crisis. Large company CEOs have blamed the layoffs on over-hiring during the pandemic, while venture capitalists have said the pull-back in new start-up funding was a needed correction from years of over-exuberance.
Still, the panic over Silicon Valley Bank on Thursday revealed deeper fears that the economic situation in Silicon Valley could still get worse. Arjun Sethi, co-founder of venture investor Tribe Capital, said in a memo posted to LinkedIn that the industry was one-third of the way through “the desert” and that founders should be prepared for new funding to become harder to come by.
“Our advice to founders: Call every debt line, close all primary rounds, do it now, and be willing to make concessions,” Sethi said. “The restructuring will be significant.”
Shares in other banks fell Thursday too as the concerns over Silicon Valley Bank spread. First Republic Bank, which also serves many California tech companies, fell 16.5 percent. JPMorgan Chase fell 5.4 percent and Wells Fargo fell 6.2 percent.
The tech industry has been grappling with the changing economy and renewed pressure from Wall Street investors to cut costs and focus on profit after years of spending money to continuously grow their businesses.
During the pandemic, big companies like Amazon, Facebook and Google hired tens of thousands of new workers to take advantage of the growth in demand for digital services as lockdowns forced people to work, shop and get their recreation through the internet. But as people returned to their in-person lives, and the stimulus funding pushed into the economy by the government dried up, the tech companies that had benefited the most from the pandemic-era economy saw their stock prices plummet.
Over the past several months, most of them have cut costs and fired workers, something that few have had to do over the past decade. The cuts have prompted soul-searching in Silicon Valley, where tech workers had grown accustomed to high salaries and constant demand for engineers and salespeople.