Startup lender Silicon Valley Bank to sell stock to cope with cash burn

SVB Financial Group has launched a US$1.75 billion share sale to shore up its balance sheet, as the lender looks to navigate declining deposits from startups struggling with venture capital funding drought.

Shares of the bank slid nearly 36 per cent in early trading on Thursday (Mar 9), their lowest in nearly three years.

“While VC (venture capital) deployment has tracked our expectations, client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted,” chief executive officer Greg Becker said in a letter to investors.

A crucial lender for early-stage businesses, SVB says it was the banking partner for nearly half of US venture-backed technology and healthcare companies that listed on stock markets in 2022.

A relentless rate increase campaign by the Federal Reserve over the last year, coupled with elevated inflation, has led to a funding winter.

VC investors are also more hesitant to sign big cheques due to a rout in the stock market, in particular those of technology firms.

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In a separate deal, private equity firm General Atlantic will also buy US$500 million worth of shares, SVB said.

Ratings agency Moody’s downgraded the bank’s long-term local currency bank deposit.

California-based bank SVB sold US$21 billion of its securities portfolio, which would result in an after-tax loss of US$1.8 billion for the first quarter, it said.

Funds raised from the sale will be re-invested in shorter-term debt and the bank will double its term borrowing to US$30 billion.

“We are taking these actions because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients,” Becker said.

“When we see a return to balance between venture investment and cash burn – we will be well positioned to accelerate growth and profitability,” he added, noting SVB is “well capitalised”.

The bank also forecast a “mid-thirties” percentage decline in net interest income this year, larger than the “high teens” drop it forecast seven weeks earlier. REUTERS