Venture capitalists weigh SVB salvage operation

Venture capital firms are working on a long-shot plan to preserve parts of Silicon Valley Bank so it can keep serving clients in the technology sector, according to people briefed on the effort.

Since 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 companies and executives in the sector. 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 that could bid for portions of SVB, they added.

The group has also spoken to other large buyout houses about funding the effort as well as Credit Suisse First Boston, the investment bank led by Michael Klein, which is advising on potential ways of structuring the deal, according to one of the people.

The efforts to salvage something from the wreckage of SVB, which was shut down by regulators last week, underscore the importance of the institution to venture capitalists. It also marks a striking turnround for venture funds that were accused last week of fuelling a run on the bank after some — including Peter Thiel’s Founders Fund — advised their portfolio companies to move deposits to other lenders amid concerns about SVB’s financial health.

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

Before pressing ahead with any bid, 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’m hopeful it could come together in the next few days,” said one of the people involved in the discussions.

The VC firms would likely require outside capital, as well as expertise in the technical aspects of running financial institutions that they lack. One person said any bid would be structured via a consortium to avoid any of the individual businesses falling under banking regulatory rules.

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

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

Apollo, Andreessen Horowitz, Khosla Ventures and General Catalyst declined to comment.

In addition to its core deposit-taking 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 tech executives and investors.

“The deal might be wholesale or piecemeal, but it is clear there needs to be financial capital providers that step into the breach . . . as there are scenarios here where large banks won’t get [to agreements with regulators over the potential liability of buying SVB],” according to a senior executive at a leading venture capital firm directly involved in the discussions.

Any effort to resuscitate SVB faces the challenge of time and complexity. One VC executive said firms were preoccupied with ensuring liquidity of their portfolio companies and that SVB clients at some point may already have established new banking relationships elsewhere.

“Even if the most powerful venture people shout, I don’t know how many [chief financial officers] at companies will be wiring their money back to whatever’s left [of SVB],” he said.