Silicon Valley Bank: Mortgages, Wine, and Repairs: Silicon Valley Bank’s Deep Tech Connections

When Kleiner Perkins, one of the most famous in Silicon Valley venture capital firm wanted to build a bridge between their two office buildings around 2005, she decided to take out a loan. He turned into Bank of Silicon Valleyjust 43 feet on Sand Hill Road, in the heart of the venture capital industry in Menlo Park, California.

To make the loan work for the Kleiner project, which is worth over $500,000, SVB agreed to lend the money against a fee the venture firm was supposed to receive from its funds, four people with knowledge of the situation said.

SVB has also provided personal banking services to many of Kleiner’s top partners, People said. This was in addition to the banking and venture debt that SVB provided to many of Kleiner’s startups, as well as mortgages for the founders of those companies. SVB even invested in Kleiner funds, two people said.

And when SVB held its annual state-of-the-art wine industry event in January, it featured speakers from, one of the world’s largest online wine retailers and a company Kleiner once invested in.

Before SVB collapsed last week and sparked a global financial panic, it was known mainly as a regional low-profile bank. But within the technology ecosystem, the bank has adapted to the quirks and idiosyncrasies of the industry, becoming unusually deeply woven into the lives and businesses of investors, entrepreneurs, and executives.

For 40 years, the institution served fact that fast-growing, high-risk technology startups and their supporters do not follow business as usual. These companies prioritize breakneck growth, change strategies frequently, and celebrate failure as a learning opportunity. They often cost billions before they ever turn a profit, and they can go from a dumb idea to a behemoth with amazing speed. Most importantly, they rely on a tight network of money, workers, founders, and service providers to function.

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This unique and often irrational reality required a specialized bank. “There were many ways in which the Silicon Valley Bank was intertwined with the lives of the people of Silicon Valley that was unique,” ​​said Anat Admati, professor of finance at Stanford. “The bank had relationships and relationships with people all over Silicon Valley. It was a point of convergence.”

This week the SVB, which last week was transferred to the Federal Deposit Insurance Corporation. – Tried to collect fragments from its collapse. On Monday, he held a phone call with investors to let them know that he had reopened for business, although he was looking for a buyer.

Mark Suster, an investor at Upfront Ventures who spoke, said he and his firm were both clients of the bank. SVB also co-sponsored a conference recently hosted by Suster’s firm and after the collapse of Upfront Ventures approved a letter signed by a group of firms urging the founders to keep or return 50% of their total capital along with the bank.

“They understand that you will have cash in several banks, they would like to be one of them,” Suster wrote to the founders of the startup on Twitter.

A spokesperson for the FDIC did not respond to a request for comment.

SVB was best known for attracting young, risky startups that other banks didn’t partner with. But his tentacles went much further than that.

The bank has lent money to many leading venture capital firms, including Andreessen Horowitz. From his own $9.5 billion fund, he has invested in startups including OpenDoor, a home buying company, and Chainalysis, a cryptocurrency investigation startup, as well as venture capital funds, including Sequoia Capital. It spawned several fintech companies that created tools for startup investors. He also flirted with the tech industry by sponsoring ski trips, conferences, industry newsletters, and gourmet dinners.

According to investors and founders, this was all part of a virtuous cycle that keeps the tech industry moving forward. Every time a startup needed a loan, the bank talked to its supporters, says Samir Kaji, who worked at SVB in the 1990s and is now the CEO of Allocate, a technology platform for managing venture capital investments.

“There were constant points of contact with investors,” he said. “Everybody knows each other”.

As the Silicon Valley startup industry flourished, SVB expanded its services to help manage the vast wealth that the industry was generating. This included providing lower interest rate mortgages to founders that other banks would not lend to. Many entrepreneurs own millions on paper but have little money in their bank accounts.

SVB has also expanded into tech-related industries, such as wineries in the Napa and Sonoma Valleys, where many tech company founders and CEOs spend their weekends. Last year, the bank extended a $1.2 billion loan to wine producers.

Gavin Newsom, the California governor who praised the SVB bailout last week, received loans from the SVB for three of his wineries, according to the bank’s website.

The dominance of SVB was well known in Y Combinator, a startup incubator. Dozens of tech company founders who participated in Y Combinator last year were invited to open bank accounts with SVB and were introduced to SVB bankers at Y Combinator events, said the three people who took part in Y Combinator’s 2022 tech entrepreneur class over the summer.

One described a cocktail hour during which he was introduced to an SVB banker who could provide a loan to his startup after he graduated from the Y Combinator program. Six months later, when he needed a loan to buy his first home, he turned to SVB. The bank looked into the valuation of his company based on the money he raised in the first round of funding and spoke to his company’s investors. He extended the loan after two other banks turned him down, he said.

According to four people who received them, SVB’s home loans were significantly better than traditional banks. Loans ranged from $2.5 million to $6 million with an interest rate of less than 2.6%. According to people, other banks refused them or, having received interest rate quotes, offered more than 3%.

Drive Capital, a Columbus, Ohio-based venture capital firm, was serviced by SVB and had lines of credit at the bank that allowed it to transfer money to its startups faster than asking its own backers to send money for every single deal. SVB has also invested in the first Drive Capital fund and two companies in its portfolio. In total, one-third of Drive Capital’s portfolio has used SVB banking services, including venture debt, a specialized type of loan for venture capital-backed startups.

“If you’re a venture capitalist or start-up, it’s fair to say that every part of your business has been affected by SVB in one way or another,” said Chris Olsen, an investor at Drive Capital.

Sequoia Capital, the leading venture capital firm that has backed Airbnb, Apple and Zoom, has always encouraged its startups to open accounts with SVB, Sequoia partner Mike Moritz wrote in a Financial Times article. He noted that Stripe, which is one of the most valuable private tech startups and considers Sequoia its largest shareholder, used SVB for a product that allows international startups to set up companies in the United States.

Andreessen Horowitz’s partners sent a letter to their investors last week to allay fears that SVB would collapse, according to a copy of a memo seen by The New York Times. The memo said that about half of the firm’s startups had a banking relationship with SVB. The firm also had an outstanding loan of approximately $16 million from the bank for “tenant improvements” or refurbishment of the firm’s offices.

Marc Andreessen, founder of Andreessen Horowitz, reached out to hedge funds and some of the world’s largest banks last week to help find a buyer for SVB, two people with knowledge of the calls said. Scott Kupor, another partner at Andreessen Horowitz, handled panicky portfolio companies and the firm’s investor issues.

A spokesman for Andreessen Horowitz declined to comment.

Matt Mireles, a startup founder, ran into SVB when the bank invited him to their box at San Francisco Giants Stadium in 2010. raised over $8 million in funding, was unprofitable. He began to think that the only way to own a house was to work for a big technology company.

But SVB looked into Mireles’ venture capital funding and list of investors and offered him an acceptable mortgage with a 20% down payment.

“That’s one of the cool things about Silicon Valley – the bank and the place,” he said. “These institutions made the entrepreneurial lifestyle – where you can fail two or three times to reach a certain level of success – they made it viable for people.”

Last week, SVB’s greatest strength – its interconnected customer community – became a double-edged sword. When venture capitalists began to worry about the bank’s solvency, it quickly led to panic in the startup world.

That Thursday, SVB hosted a dinner at the South by Southwest technology festival in Austin, Texas, where a group of investors and startup founders Perry’s Steakhouse served grilled salmon and filet mignon.

As concerns about the future of the bank spread through group chats, emails and social media, attendees began referring to the party as a “secret dinner”.

Jake Chapman, an investor in Marque Ventures who attended the dinner, said he took the host aside to ask about the brewing crisis and was rebuffed. “She just said balance was strong,” he said.

The next morning, SVB clients attempted to transfer $42 billion in deposits from the bank, causing the FDIC to shut it down.