A view of the Silicon Valley Bank headquarters in Santa Clara, California, on March 13, 2023, after the federal government intervened in the bank’s collapse.
Nicolas Lepin | Anadolu Agency | Getty Images
Silicon Valley Bank is the first choice for startups looking for a banker who understands startup life and balance sheets. This is especially true for the group of start-ups that are building and scaling to fight climate change.
back a very stressful weekend For many entrepreneurs and investors, banking Regulators set out a support plan SVB’s deposit ensures that depositors will not lose money.
Founded in 1983 to help start-ups, SVB has a strong and established climate business with 1,550 climate technology and sustainability clients, according to its website.
“Unlike many of its peers, SVB has a strong reputation in the energy transition and is willing to put its money where its mouth is.” Mona DayaniHead of Renewable Energy and Infrastructure Law sherman and sterling.
Dajani told CNBC: “Many clean energy companies choose SVB because they have established and focused clean energy practices, and they are believed to have more experience in the clean energy space than most of their regional and large expansion bracket peers.”
But since the inception of SVB, the climate space has expanded, paving the way for new lenders to service the market.
“Fundamentally, the companies that are coming out of the climate right now have real strength. These are foundational companies, and people will want to lend money to them because it’s good business,” explained KaterayCEO enginean accelerator and venture fund focused on tough technologyincluding climate startups.
“In the last three days, I’ve probably had 50 emails in my inbox from different vendors saying, ‘Hey, I know SVB is in bad shape. We also do venture debt.’ There will be a lot of people emerge,” Rae told CNBC in a phone conversation Tuesday.
Wind turbines are seen on February 22, 2023 at a wind farm near Whitewater, California, which is the main source of energy for the Coachella Valley.
Mario Tama | Getty Images
Learn how startups work
A venture-backed startup is an unusual business. In the early stages, they may not have cash flow, revenue or even customers. Instead, they rely on venture capital, where investors provide cash in exchange for equity in the hope that startups will prove their technology, find customers and eventually grow into giants.
Banking such clients requires special skills and an appetite for risk.
“Nobody understands startups and how to lend to them like Silicon Valley Bank,” says Zachary Borglongtime technology investor and co-founder DC VC.
“I envision a startup’s app getting wiped out by the risk committee of a big bank,” Borg told CNBC.
that’s exactly Bill ClericoMay 2009 experience. When Clerico and Rich Aberman moved to Silicon Valley to grow their fintech company, micropaymentthey have a small business account with Bank of America, but that account doesn’t have the services startups need.
“Silicon Valley Bank understood that even though we might only have around $10,000 in deposits at the time, we had a lot of potential,” Clerico told CNBC.
It turns out that SVB was right to bet on Clerico. WePay was acquired by JPMorgan Chase December 2017.
“The early investment in our relationship paid off,” Clerico told CNBC. “Over time, our deposit balances grew into the hundreds of millions of dollars, we borrowed millions in risky debt from them, and processed billions of dollars through their accounts.”
In January 2022, Clerico launches Convective Capital, a $35 million venture capital round Fund invests in wildfire technology. He is eager for someone to fill the void left by the SVB.
“Some people might confuse their balance sheet driven collapse with the failure of this startup-centric business model – but the truth is, I think banking startups are still a great business and a A role that needs to be filled,” Clerico told CNBC. (It is worth noting that Clerico is HG, a start-up company working to meet this need. )
“I want SVB and their business model to survive in some form,” Clerico said.
The ‘1,000-pound gorilla’ of venture debt lending
In the climate technology ecosystem, SVB is particularly prominent in lending to companies with venture capital funding (known as “venture debt”). This is critical for startups that are still not generating enough cash flow to be self-sustaining, especially between financing rounds.
Rae told CNBC: “It increases the amount of capital they raise, extends the runway a little bit, and gives them more time to make progress on the business.” Venture debt could add three to six to the runway debt a company already has, Rae said. moon.
“There are other places to do venture debt, but Silicon Valley Bank is the 1,000-pound gorilla in the room,” says AmicasarCEO of Business Loan Advisor Multiple funding.
“The concern now is that even with full deposits, companies with SVB may no longer have access to credit facilities, which is a vital industry,” Dajani said.
Still, Casar told CNBC that lending money to venture-backed companies is a riskier endeavor than traditional banking.
“I’ve always wondered how they managed to get regulators to allow them to hold such a high concentration of risky debt,” Casar said.
Solar panels are installed at the UC Merced Solar Farm in Merced, Calif., Aug. 17, 2022.
Nathan Frandino | Reuters
climate is good business
SVB was an early supporter of climate technology, helping many of these companies get off the ground. But as the industry matures, participants believe other financial institutions will be more willing to lend to these companies.
“Silicon Valley Bank’s early support and commitment to backing climate tech startups certainly helped catalyze the massive migration of capital you’re seeing now into the sector,” said Adam Braun, founder of Climate Startups climate clubtold CNBC.
For example, SVB finances 60 percent of community solar projects, says Kieran BhatrajuCEO Arcadiaa climate technology company, among its many services, Helping people connect to community solar projects.
In this regard, the bank “is a pioneer in climate banking,” says Stephen SpearsCo-Founder and CEO of Solstice Power TechnologyIt built a technology to help Connecting people to community solar projects.
“But renewable energy has come a long way in the past decade, and there is now a wider pool of potential financiers looking to get on board,” Spears said.
That’s what Braun wants to see.
“I believe we will see more institutions establishing dedicated climate practices and funds to support startups in this space,” Braun told CNBC. “While SVB may be a first mover, I don’t think the events of last week will diminish the desire to fund and support the emerging companies leading the fast-growing climate tech industry.”
First Republic and JP Morgan are “increasingly prioritizing the category,” said Chauncy Hamilton, a partner at the agency. Venture Capital Firm XYZ, told CNBC. “More and more banks are starting to focus on the climate,” Hamilton said.
Mark CassadyFounder of venture capital firm Vestigo Ventures,agree.
“Climate solutions are too powerful to stop because one bank fails. The need is critical and we don’t have time to find solutions. Since it’s a basic need, it will get more, not less support,” Kasady told CNBC.
However, this transition will take time. For companies working to combat global warming, time is the ultimate enemy.
“I do hope that the big banks will eventually step up and provide the capital the industry needs to move forward – these projects are too attractive, and the promise of climate technology is too great. But it will take some time, and delays could be costly. Fighting climate change is expensive,” Bhatraju told CNBC.
“With all the new investment in climate technology and the future opportunities offered by the IRA [Inflation Reduction Act], has a ton of momentum. We don’t want to lose it,” Bhatranju said.