Venture capitalists weigh SVB salvage action

Venture capital firms are working on a long-term plan to retain parts of Silicon Valley Bank so it can continue serving clients in the technology sector, according to people familiar with the effort.

As of late last week, a group of more than a dozen VC firms have been in talks about how to enable SVB to continue lending to, investing in, and advising on companies and industry executives. Firms involved in the talks include General Catalyst, Andreessen Horowitz and Khosla Ventures, the people said.

One of the proposals being discussed is forming a consortium with private investment firm Apollo Global Management, which could bid for parts of SVB, they added.

The group has also spoken to other major buyout houses about funding the effort, as well as Michael Klein-led investment bank Credit Suisse First Boston, which one of the people said is advising on possible ways to structure the deal.

Efforts to salvage something from the wreckage of the SVB, which was shut down by regulators last week, underscore the institution’s importance to venture capitalists. It also marks a notable turnaround for venture funds, which were accused last week of fomenting a run on the bank after some – including Peter Thiel’s Founders Fund – advised their portfolio companies to shift deposits to other lenders amid concerns about the financial health of SVB.

Founders Fund is not a member of the consortium in talks to acquire some of the bank’s assets, a person with direct knowledge of the talks said.

Before proceeding with any offer, the group is asking regulators for more information on the state of the bank, according to one of the people.

“It’s still premature, but I hope it could come together in the next few days,” said one of those involved in the talks.

The VC firms would likely need leverage as well as expertise in the technical aspects of running financial institutions, which they lack. One person said any bid would be structured through a consortium to avoid any of the individual companies falling under banking prudential rules.

Apollo is a longtime investor in debt and equity in financial institutions and over the weekend had spoken with about a dozen venture capital firms about providing liquidity to portfolio companies whose cash was trapped at SVB.

Apollo may be interested in acquiring SVB’s loan book or lending business, but is not interested in directly acquiring an interest in a potential new SVB, according to a person familiar with its considerations.

Apollo, Andreessen Horowitz and General Catalyst all declined to comment. Khosla Ventures did not respond to a request for comment.

In addition to its central deposit bank, SVB was known for its wealth management and investment banking groups, which catered to venture capital firms and portfolio companies, as well as wealthy technology executives and investors.

“The deal can be done in bulk or piecemeal, but it’s clear there will have to be financial investors stepping into the breach. . . because there are scenarios here where big banks can’t get there [to agreements with regulators over the potential liability of buying SVB]’ said an executive at a leading venture capital firm who was directly involved in the talks.

Any attempt to revive SCC faces the challenge of time and complexity. A VC executive said the companies are busy ensuring liquidity for their portfolio companies and at some point SVB clients may already have established new banking relationships elsewhere.

“Even if the most powerful venture people scream, I don’t know how many [chief financial officers] Companies will transfer their money back to what’s left [of SVB],” he said.