The collapse of Silicon Valley Bank (SVB) caused a global sensation.

As of March 12, 325 venture capital firms, including Sequoia Capital, have signed a joint statement of support for Silicon Valley Bank. In addition, 650 founders, employing more than 22,000 people, have also signed a petition asking regulators to stop the disaster.

On March 11, Sam Altman, the CEO of OpenAI, the developer of ChatGPT, said that even if Silicon Valley Bank can't find an acquirer or get outside investment in the short term, the money that startups keep with Silicon Valley Bank will eventually be recovered. It's not their fault that some tech companies will have liquidity problems, and tech workers need to be paid to support their families.

It is worth noting that Silicon Valley Bank is not only serving tech startups, but also deeply involved in financial services for biotech startups. According to industry media reports, Silicon Valley Bank is a major financial services provider in the technology and healthcare industries, holding billions of dollars in deposits in a number of start-up private companies in the industry.

On March 13, a chief analyst of the pharmaceutical industry of a securities company told Surging Technology: "SVB's shock to pharmaceutical companies is generally controllable. From the domestic point of view, we have counted more than 20 Chinese pharmaceutical companies, most of which have no business dealings with SVB. For foreign pharmaceutical companies, it may have a short-term impact on downstream customers mainly at the financial level, but from our observation, the scope of impact is limited, and it accounts for a small proportion of the entire company's business. So in general, it's not a 'stepping on the thunder', it's an Asset Duration Matching issue where the impact is manageable and the probability of extreme outcomes is low."

Rapid collapse

Founded in 1983, Silicon Valley Bank has been focused on providing financial services to technology start-ups and is the largest technology bank in the United States, ranking 16th in the U.S. banking industry. It was established in the early development of the Internet industry in the United States, along with the development and growth of scientific and technological enterprises, successfully helped Facebook (Facebook), Twitter (Twitter) and other star enterprises, can be described as a veteran scientific and technological innovation bank rooted in Silicon Valley. As of December 31, 2022, Silicon Valley Bank had total assets of approximately $209 billion and total deposits of approximately $175.4 billion.

However, in the past 5 to 10 years, Silicon Valley Bank has not had too many achievements in the field of investment in the "old bank" scientific and technological enterprises, but began to do traditional banking business such as bond investment and other so-called low-risk investments, and the problem this time is precisely this low-risk area of business.

In previous years, Silicon Valley banks were raking in cash as U.S. start-ups attracted large amounts of venture capital and the Federal Reserve kept interest rates ultra-low. However, according to the Associated Press, in response to high inflation, the US Federal Reserve Board has repeatedly raised interest rates aggressively since last year, and Silicon Valley banks have been hit hard. At the same time, the recent sharp layoffs in the U.S. technology industry, the beating of technology stocks, and the decline in venture capital investment have caused start-ups to withdraw their deposits, and Silicon Valley banks have found themselves struggling on both sides.

To raise money quickly, on March 8th Silicon Valley Bank sold a portfolio of about $21 billion in securities, resulting in a loss of $1.8 billion. The news thoroughly exposed the bank's plight, increased the market's fears of SVB's insolvency, intensified the run and market panic, causing the parent company Silicon Valley Bank Financial Group's stock price to plunge more than 60% on March 9 and 68% on March 10, into a trading suspension.

According to the United States "Fortune" website reported on March 11, just 11 days before Silicon Valley Bank declared bankruptcy, its chief executive Greg Becker (Greg Becker) sold $3.6 million worth of shares in the parent company SVB Financial Group under a trading plan. According to a regulatory filing with the U.S. Securities and Exchange Commission, Becker filed a plan to sell shares on Jan. 26 and sold about 12,000 SVB Financial Group shares on Feb. 27.

How big is the Silicon Valley Bank bust? Christopher Whalen, chairman of Whalen Global Advisors, a financial advisory firm, said: "With the banks in trouble, there could be a bloody battle next week, and the short sellers are out there and they will attack every bank, especially the smaller ones." "The question of the debate today is, is this just a problem for Silicon Valley banks, or is it the start of a bigger problem for the banking industry?" said Patrick O'Hare, a market analyst at the Newsletter.

Some analysts see limited risk of contagion in the banking sector from Silicon Valley bank failures. Ken Leon, of Financial Research and Analysis, said that Silicon Valley banks' woes were caused by "special pressures rather than systemic pressures that we thought would affect the banking sector" and that the US had tightened regulations after the financial crisis. Us Treasury Secretary Janet Yellen held an emergency meeting with key banking regulators on March 10 and expressed "full confidence" that they were taking appropriate action in response, saying the US banking system remained resilient.

Will there be an earthquake in medicine?

Silicon Valley Bank has previously said that in 2022, it provided banking services to at least half of the healthcare startups backed by venture capital funds, and participated in 44% of the Initial Public offerings in the US healthcare and technology sector in 2022. When a company makes an initial public offering of shares and becomes listed on a stock exchange). According to its presentation materials for the fourth quarter of 2022, Silicon Valley Bank offers a range of banking and investment services from the early stages of the life cycle of these startups, not only for the company as a whole, but also for its individual employees.

The impact of biomedical deal activity on Silicon Valley banking. Image credit: Silicon Valley Bank Q4 2022 presentation materials

The Silicon Valley Bank incident has left US biopharmaceutical venture capitalists and entrepreneurs constantly oscillating between reminding the market to keep calm and taking steps to protect themselves.

On March 9, Bruce Booth, a partner at Atlas Venture, urged the market to remain calm on the US social networking site: "Any financial risk here is oversold, the real risk is contagion. But the reality is that Silicon Valley banks are liquid, have passed stress tests and have low loan-to-capital ratios. So please stay calm."

Isaac Stoner, chief executive of Octagon Therapeutics, said his company has no money in a Silicon Valley bank, but he has heard peers discussing how to deal with the risk. "It's absolutely crazy for venture capitalists to tell their portfolio firms to take their money elsewhere, and this contagion of fear is working badly for Silicon Valley banks." "Isaac Stoner said.

But Stoner added: "If I had money in a Silicon Valley bank, I would be desperate to move at least a few months 'worth of working capital elsewhere."

Seth Bannon, founder of early-stage venture capital firm Fifty Years, said in an interview with industry publication Endpoint News that since Thursday they have been reminding their portfolio firms to either move their money out of Silicon Valley Bank or keep it in Silicon Valley Bank, but always move it to a money market account. Bannon also said that this "operational conundrum" will disrupt the daily work of startup founders, such as recruiting, customer meetings and scientific operations.

Ethan Perlstein, a research scientist at rare disease biotech company Perlara and its sub-brand Maggie's Pearl, expressed support for Silicon Valley Bank on social media, saying: "Founders who haven't experienced financial contagion now know what it feels like. But remember you're a depositor, not a creditor. Stop scaremongering!"

But hours later, before news of Silicon Valley Bank's closure became public, Perlstein declined to comment further: "No thanks, I don't want to contribute to further bank runs."

U.S. global financial services firm BTIG has released a list of healthcare companies that could be covered by a Silicon Valley bank failure, and BTIG analysts stressed that the list is only based on the most recent filings of these companies and covers only a small percentage.

For example, ViewRay, the world's leading magnetic resonance guided radiotherapy company. It has a five-year loan agreement with MidCap (a mid-sized company with a market capitalization between $1 billion and $10 billion) and Silicon Valley Bank that includes a term loan of up to $100 million and a revolving credit facility of up to $25 million. As of December 31, 2022, ViewRay's outstanding debt was $80 million. This includes $75 million from its term loan and $5 million from its revolving credit facility.

There is also AtriCure, a leading provider of innovative technologies to treat atrial fibrillation and related conditions. The Company's five-year loan agreement with Silicon Valley Bank includes a $60 million term loan with an option to provide an additional $30 million term loan borrowing, plus a $30 million revolving credit facility. As of December 31, 2022, AtriCure had $60 million of debt outstanding under its term loan facility. It also has approximately $29 million of unused borrowing capacity under the revolving credit Facility.

However, AtriCure spokesman Justin Noznesky told MassDevice: "Most of our cash and investments are held outside of SVB and are not at risk."

Will it affect Chinese drug companies?

As for the impact on Chinese pharmaceutical companies, at noon on March 12, China's individual biomedical companies responded to their bank deposits in Silicon Valley. Genting Xinyao Pharmaceutical Technology Co., LTD. (1952.HK, hereinafter referred to as "Genting Xinyao"), which is listed on the Hong Kong stock exchange, is mainly engaged in the development, manufacturing and commercialization of innovative drugs and vaccines. Genting Xinyao said it had conducted a thorough analysis of its exposure to the SVB event and announced that only a very small amount of the company's cash (well below 1% of the company's total cash) was deposited with the bank. At the same time, the Company expects to recover most of its deposits with Silicon Valley banks through Federal Deposit Insurance Corporation (FDIC) insurance in combination with other compensation measures, the amount not insured by the FDIC is approximately US $1 million, and Genting Xinyao has no deposits with other US banks other than Silicon Valley Bank.

"The company believes that the impact of the Silicon Valley Bank incident on the company's business is very limited." Genting Xinyao Fang said it has ample cash reserves and currently expects a cash balance of about $430 million. The company has consistently adhered to and implemented a sound financial policy, with assets scattered across multiple banks and accounts, and the company's financial position is healthy.

Aseng Pharmaceutical Group (06855.HK) also announced on the Hong Kong Stock Exchange on March 12 that in view of the recent event of Silicon Valley Bank of the United States being ordered to close, the company hereby states that the company has not had business cooperation with Silicon Valley Bank or its affiliates since its establishment. In addition, as of the date of this announcement, the Company does not have any deposits with Silicon Valley Bank of America or its affiliates.

However, China International Capital Corporation (CICC) said on its wechat official account "CICC Macro" : "We believe that the impact of the SVB incident on the technology industry may not be underestimated." Although the total size of SVBS is far from systemically important banks, the impact on the technology sector is likely to be more concentrated because of the high industry concentration of their deposits. More importantly, the technology industry, especially start-ups, has poor self-cash flow hematopoietic ability, but the intensity of cash flow expenditure (including personnel salaries, research and development expenses) is high, and there is no other mortgage products, so existing cash deposits are crucial for these start-ups. If these cash deposits eventually have to be reduced in the process of bankruptcy reorganization (deposit insurance system does not provide full protection for large deposits of enterprises), some technology companies may face high cash flow pressure, and bankruptcy risk cannot be ruled out."

"And the banks that are in trouble may not stop at one SVB institution, such as First Republic, Brex [a guaranteed fintech company that is a star in the local US segment] and other local banks in California that are doing business in imitation of SVB, all face similar risks." The relevant personnel of CICC emphasized.

Thepaper.cn reporter Yiqi Yao