Silicon Valley Bank failure hits St. Louis startup environment

ST. LOUIS — The uproar from the Silicon Valley Bank failure has rippled through the Midwest’s startup community and has affected some new local companies.

The seizure of the bank’s assets on Friday set off a weekend of questions, phone calls and emergency meetings – followed by relief on Monday when the federal government announced a plan that would allow payments to resume.

“Silicon Valley Bank had tentacles into the startup community across the country and beyond,” said Donn Rubin, founding president and CEO of BioSTL and chairman of its investment arm, BioGenerator.

Silicon Valley Bank, a popular bank among young companies, is the 16th largest in the country and the largest to fail since the financial crisis of 2008. It was known in the industry for “venture debt,” a type of lending that is attractive to some early-stage companies that typically do not require a company to give up all ownership of the business, but tend to come with a higher interest rate.

The Santa Clara, California-based Silicon Valley Bank claimed it served nearly half of all US venture-backed startups. Local financiers said it appears to have had a smaller presence among their businesses in St. Louis area, but the failure still spooked local businesses that banked in whole or in part at Silicon Valley Bank.

“It wasn’t half of our portfolio as it would have been for West Coast companies,” said Cliff Holekamp, ​​co-founder and managing director at Cultivation Capital, an early-stage venture capital firm headquartered in downtown St. Louis.

But for those affected, he assured, “it was very real.” And even companies that didn’t have assets in Silicon Valley Bank are beginning to reevaluate their banking practices.

Word of Silicon Valley Bank’s troubles began to spread last week. On Friday, regulators seized its assets.

At that time, some companies had withdrawn their deposits. Those who did not were left to wonder what money they would recover and whether they would be in time to pay their vendors and employees. Funders considered providing emergency capital to bridge the crisis.

“It was definitely a very stressful weekend,” Holekamp said.

On Sunday night, the US government announced a plan. It transferred all deposits to a “bridge bank” operated by the Federal Deposit Insurance Corporation. Depositors will be able to access their money on Monday.

“For the panic that people felt on Friday, the response from the federal government should have been massively reassuring,” said Jerome Katz, a professor of entrepreneurship at St. Louis University.

Creve Coeur-based agricultural technology company Benson Hill managed some of its financial operations at Silicon Valley Bank with just over $7 million in accounts there, Chief Financial Officer Dean Freeman told investors Monday.

On Tuesday, a company spokesman said payments had resumed.

Gabe Angieri, CEO of ArchGrants, said of his organization’s roughly 145 active, local companies, a few had “notable exposure” to Silicon Valley Bank.

Fortunately, he said, most of them were bankrolled at one or two other institutions as well. And with the federal intervention, “the potentially catastrophic situation was resolved pretty quickly,” Angieri said.

At the beginning of this week, Angieri said, companies seemed much more calm and “out of crisis mode.”

For entrepreneurs who weren’t starting out in 2008, Silicon Valley Bank’s failure was likely “a real shock to the system,” said Katz, St. Louis University professor.

“For people who were around in 2008, we say, ‘It’s not nearly as bad as it was then,'” he added.

After the failure of Silicon Valley Bank, Cultivation Capital’s Holekamp said he suspects companies will become more discriminating bank customers, more ready to evaluate institutions’ financial stability.

“I think since 2012, people hadn’t really thought about it,” Holekamp said. Right now, he added, “people feel reassured, but their blood pressure is still high.”

Angieri said that may be an opportunity to move some early-stage venture banks to regional banks in the Midwest away from “Silicon Valley-type ventures.”

Midwestern banks are historically much more diversified than Silicon Valley Bank, Katz said.

On Wednesday afternoon, Kansas City-based financial services firms Commerce Bancshares Inc. and UMB Financial Corp. still saw shares fall 7% and 24% over the past five days.