Silicon Valley Bank failure hits St. Louis startup community

ST. LOUIS — The tumult of the Silicon Valley Bank failure has rippled through the Midwest’s startup community, affecting some emerging local companies.

The seizure of the bank’s assets 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 all over the country, and beyond,” said Donn Rubin, founding president and CEO of BioSTL, and chairman of its investment arm, BioGenerator.

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

The Santa Clara, California-based Silicon Valley Bank claimed that it served nearly half of all U.S. venture-backed startups. Local funders said it appears to have had a smaller presence among their St. Louis-area businesses, but the failure still startled the local companies that were partly or fully banked at Silicon Valley Bank.

“It wasn’t half of our portfolio, like it would’ve 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 that were affected, he assured, “it was very real.” And even companies that didn’t have assets at Silicon Valley Bank have begun re-examining their banking practices.

A stressful weekend

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

By then, some companies had pulled their deposits. Those who didn’t were left to wonder what money they’d recover, and whether it would come in time to pay their vendors and employees. Funders considered providing emergency capital to bridge the crisis.

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

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

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

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

On Tuesday, a company spokesperson said payments had resumed.

Gabe Angieri, executive director 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 those were also banked with one or two other institutions. And with the federal intervention, “the potentially disastrous situation was resolved pretty quickly,” Angieri said.

By early this week, Angieri said, companies seemed much more reassured, and “out of crisis mode.”

Fears and reassurances

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

“For folks who were around in 2008, we’re saying, ‘It’s not nearly as bad as it was back then,’” he added.

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

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

Angieri said it may be an opportunity to shift some early stage venture banking to regional, Midwest banks, away from “Silicon Valley-type ventures.”

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

Still, as of Wednesday afternoon, Kansas City-based financial services companies Commerce Bancshares Inc. and UMB Financial Corp. had seen shares drop 7% and 24% over the past five days.