Silicon Valley Bank (SVB) has reportedly — and carefully — reentered the startup/venture lending business.
As The Wall Street Journal (WSJ) reported Wednesday (July 5), the bank — acquired this spring by First Citizens — has slowed its lending, leading to slowing venture debt market, and in turn keeping already-struggling startups from getting funded.
“The economy and the fundraising environment are headwinds on loan origination,” Marc Cadieux, who was named president of SVB’s commercial banking division last month, told WSJ. “Fewer companies are able to clear that key underwriting bar — do you still have the support of venture investors behind you.”
The report also cites comments from First Citizens’ CFO Craig Lockwood Nix, who projected SVB’s loan book will decline by around 8% before the end of the year, as long as the venture market downturn continues.
First Citizens purchased SVB in March after the bank collapsed and was taken over by regulators. As of the end of the first quarter, SVB’s loan book was $66 billion, with more than half of that issued to venture and private equity funds. A month later, it had fallen to $62 billion.
In an interview with PYMNTS’ Karen Webster earlier this year, Amias Gerety, partner at QED Investors, predicted that venture debt would become a smaller industry with SVB under First Citizens’ ownership, while key players in the space will become more careful about the companies they lend to.
“A venture debt deficit was on its way regardless,” PYMNTS wrote. “True enough that Silicon Valley Bank was a big player, Gerety said, and a repeat player who had a lot of faith in the [venture and startup] system. It was also willing to participate in that system on a long-game basis.”
Still Gerety said that what was happening in the venture ecosystem was more about wider macroeconomic trends and changes rather than a specific player.
Meanwhile, PYMNTS examined startups’ use of venture capital and venture debt in a recent conversation with Jay Wilson, investment director at U.K.-based investment firm AlbionVC.
“Venture capital is wrong for about 99% of businesses out there,” Wilson said, noting that “VC money is designed for very specific types of businesses with very specific types of ambition, and in reality, it is a very expensive financing method.”
He added that startups have other options like venture debt, which he said has always been useful in the capital spectrum, “either as an outright funding source or as a bridge between two funding rounds.”