SVB collapse killed startup venture capital --- already in free fall

(Ashley, “SVB collapse is double-whammy for tech startups already navigating brutal market,” pg online @ https://www.cnbc.com/2023/03/19/svb-fail-is-double-whammy-for-startups-dealing-with-plunge-in-venture-.html //um-ef)

ChartHop CEO Ian White breathed a major sigh of relief in late January after his cloud software startup raised a $20 million funding round. He’d started the process six months earlier during a brutal period for tech stocks and a plunge in venture funding. For ChartHop’s prior round in 2021, it took White less than a month to raise $35 million. The market turned against him in a hurry. “There was just a complete reversal of the speed at which investors were willing to move,” said White, whose company sells cloud technology used by human resources departments. Whatever comfort White was feeling in January quickly evaporated last week. On March 9 — a Thursday — ChartHop held its annual revenue kickoff at the DoubleTree by Hilton Hotel in Tempe, Arizona. As White was speaking in front of more than 80 employees, his phone was blowing up with messages. White stepped off stage to find hundreds of panicked messages from other founders about Silicon Valley Bank, whose stock was down more than 60% after the firm said it was trying to raise billions of dollars in cash to make up for deteriorating deposits and ill-timed investments in mortgage-backed securities. Startup executives were scrambling to figure out what to do with their money, which was locked up at the 40-year-old firm long known as a linchpin of the tech industry. “My first thought, I was like, ‘this is not like FTX or something,’” White said of the cryptocurrency exchange that imploded late last year. “SVB is a very well-managed bank.” But a bank run was on, and by Friday SVB had been seized by regulators in the second-biggest bank failure in U.S. history. ChartHop banks with JPMorgan Chase , so the company didn’t have direct exposure to the collapse. But White said many of his startup’s customers held their deposits at SVB and were now uncertain if they’d be able to pay their bills. While the deposits were ultimately backstopped last weekend and SVB’s government-appointed CEO tried to reassure clients that the bank was open for business, the future of Silicon Valley Bank is very much uncertain, further hampering an already troubled startup funding environment. SVB was the leader in so-called venture debt, providing loans to risky early-stage companies in software, drug development and other areas like robotics and climate-tech. Now it’s widely expected that such capital will be less available and more expensive. White said SVB has shaken the confidence of an industry already grappling with rising interest rates and stubbornly high inflation. Exit activity for venture-backed startups in the fourth quarter plunged more than 90% from a year earlier to $5.2 billion, the lowest quarterly total in more than a decade, according to data from the PitchBook-NVCA Venture Monitor. The number of deals declined for a fourth consecutive quarter. In February, funding was down 63% from $48.8 billion a year earlier, according to a Crunchbase funding report. Late-stage funding fell by 73% year-over-year, and early-stage funding was down 52% over that stretch. ‘World was falling apart’ CNBC spoke with more than a dozen founders and venture capitalists, before and after the SVB meltdown, about how they’re navigating the precarious environment. David Friend, a tech industry veteran and CEO of cloud data storage startup Wasabi Technologies, hit the fundraising market last spring in an attempt to find fresh cash as public market multiples for cloud software were plummeting. Wasabi had raised its prior round a year earlier, when the market was humming, IPOs and special purpose acquisition companies (SPACs) were booming and investors were drunk on low interest rates, economic stimulus and rocketing revenue growth. By last May, Friend said, several of his investors had backed out, forcing him to restart the process. Raising money was “very distracting” and took up more than two-thirds of his time over nearly seven months and 100 investor presentations. “The world was falling apart as we were putting the deal together,” said Friend, who co-founded the Boston-based startup in 2015 and previously started numerous other ventures including data backup vendor Carbonite. “Everybody was scared at the time. Investors were just pulling in their horns, the SPAC market had fallen apart, valuations for tech companies were collapsing.” Friend said the market always bounces back, but he thinks a lot of startups don’t have the experience or the capital to weather the current storm. “If I didn’t have a good management team in place to run the company day to day, things would have fallen apart,” Friend said, in an interview before SVB’s collapse. “I think we squeaked through, but if I had to go back to the market right now and raise more money, I think it’d be extremely difficult.” In January, Tom Loverro, an investor with Institutional Venture Partners, shared a thread on Twitter predicting a “mass extinction event” for early and mid-stage companies. He said it will make the 2008 financial crisis “look quaint.”