Silicon Valley Bank has demonstrated robust financial performance for several years with consistent growth in its loan portfolio and revenues. Its success has been attributed to the technology industry’s continuous expansion, which has created a higher demand for the bank’s services.
Despite its successful track record, SVB experienced a paradoxical event last week when it collapsed following a tumultuous 48-hour period during which customers rapidly withdrew deposits in a classic bank run.
According to data acquired and released by Blockchain Centre, this year alone, SVB has managed to successfully raise funds eight times before its ultimate crash. At the beginning of 2023, the bank accumulated an astounding $268.5 million through fundraising efforts. It is noteworthy that SVB completed its most recent fundraising round just two days before the bank’s unfortunate collapse on March 10, 2023.
Among the companies involved with SVB’s latest funding rounds were financial technology firms such as Paytient, which raised $7.5 million and Socure, which raised over $95 million. The last funding round, which occurred on March 8 – just two days before the collapse, brought the bank the highest revenue this year. Other funding rounds this year involved various startups and growth companies – Arrcus, InfluxData, Nada, Miach Orthopaedics, Cloudian and Flux Power.
The financial performance of the bank in question has exhibited an interesting trend over the years, with its revenue showing a consistent and significant increase annually. The bank’s revenue has been on an upward trajectory since 2009 when it reported a revenue of $529 million. Fast forward to 2021, and the bank’s revenue has grown exponentially to $6.03 billion. The bank’s revenue hit an all-time high of $7.4 billion just last year.
SVB’s popularity in the past resulted from its specialized financial services that catered to the specific needs of technology, venture capital, and private equity firms. Remarkably, in the last three months of existence alone, the bank has organized eight funding rounds for a range of tech startups and growth companies, raising an impressive $268.5 million.
These remarkable achievements indicate investors’ high level of confidence in SVB’s ability to deliver solid returns and highlight the bank’s potential to have been a significant player in the financial industry. Unfortunately, the bank’s collapse has raised questions about the stability of the financial sector and the need for better regulation to prevent such incidents from occurring in the future.
SVB’s collapse, although seeming abrupt, was a gradual process, starting with the bank’s investment in US government bonds during the low-interest-rate era. This strategy failed when the Federal Reserve aggressively increased interest rates to curb inflation, leading to higher borrowing costs for struggling tech startups. These startups, unable to secure new venture capital funding, had to rely on their SVB deposits to finance their operations, exacerbating the bank’s problems.
Notably, Greg Becker, the CEO of Silicon Valley Bank, sold company stock worth $3.6 million under a trading plan just two weeks prior to the bank announcing significant losses that resulted in its collapse. This proves that the crisis has been months in the making.
The possibility of a banking crisis still looms as other banks are starting to show signs of stress. Trading for First Republic Bank and PacWest Bancorp was halted after their shares plummeted by 51% and 37%, respectively. However, experts note that US and European banks now have stronger financial defences compared to the global financial crisis. They also emphasize that SVB had significant exposure to the tech industry, which was severely affected by the rising interest rates.
The collapse of Silicon Valley Bank serves as a cautionary tale for the financial industry, highlighting the need for better regulation and risk management practices, as well as the potential consequences of relying too heavily on a single industry for growth.