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FutureStarrSeveral of the Companies That Held Money at Silicon Valley Bank on Friday
Silicon Valley Bank was the "startup bank," taking in cash from venture-backed companies and SPACs. When those ventures started failing, however, the bank found itself with less funds flowing in and losses had to be recognized by it.
Many tech leaders warned startups holding money with SVB not to panic or withdraw their funds, yet some were unnerved by fears of insolvency. This fear led to a self-fulfilling run and ultimately the bank's demise.
The sudden collapse of Silicon Valley Bank has raised serious worries about what this could mean for the entire financial system. Companies holding money at SVB on Friday, such as Roblox and streaming device maker Roku, expressed anxiety over their own finances and those of others affected by its demise.
Roblox is a free-to-play gaming platform that enables users to create their own games in an imaginative universe. According to the company, over 164 million monthly users play on the site each month - many of them kids who spend a lot of time playing the games which can be purchased with in-game currency called Robux.
Roblox stands out among other online children's games in that all games are created by users rather than an organized developer. This gives users the freedom to create whatever they wish, while also ensuring each game has its own unique story and theme, making them unique from each other.
Developers on Roblox often make a substantial income by selling in-game items or cosmetics for their game. Some transactions on Roblox can be worth several hundred dollars or even more.
Investors must ask if Roblox can retain its users, particularly as they grow older. Though the company has taken steps to moderate and filter content, parents have still voiced concerns about its safety features.
Roblox has also raised concerns regarding its dependence on microtransactions, such as in-game purchases of cosmetic items and skins. These transactions have been accused of exploiting kids' interests to monetize games.
Due to these, the company has faced numerous negative media stories regarding how it treats its users. Some even accused it of encouraging sexual misconduct.
In response, the company has implemented avatar clothing detection and reporting tools as well as parental controls that can block children from playing games with certain gender or sexual orientation. Furthermore, it has made it more challenging for users to download nude patches.
It remains uncertain if these changes will help the company retain users as they age or if it will only make them less engaged. It is understandable that such worries would persist, especially when other, more popular gaming platforms exist.
BlockFi, which filed for bankruptcy in November, held $227 million worth of uninsured assets with Silicon Valley Bank. The money is believed to be in a fund provided by the bank.
The investment, which was not insured by the Federal Deposit Insurance Corporation (FDIC), was made in a money market mutual fund (MMMF), an entity investing in debt securities with short maturity dates and minimal credit risk. The MMMF was launched by SVB, which was shut down by California's Department of Financial Protection and Innovation on March 10.
On Friday, SVB announced its closure, leaving crypto investors concerned about their investments with the company. Many crypto firms have acknowledged their exposure to the failed bank, such as Circle and Rocket Lab.
Circle has previously reported that SVB was one of the six banks it used to manage 25% of its USDC cash reserves, however Rocket Lab reports having almost 8% of their total cash with SVB through an account at SVB.
Other crypto companies have also expressed their affinity for SVB, such as hardware digital media company Roku which holds about 26% of its cash with them. Many other crypto entities cited SVB as their primary banking partner, such as Avalanche Foundation, Yuga Labs and Proof.
SVB's collapse has had a devastating effect on several businesses, such as blockchain venture capital firm Pantera which held an unknown amount of cash with the bank, and crypto-focused startup FTX which had previously been supported by a revolving $250 million line of credit.
However, the companies are uncertain if they'll release the cash from SVB to their customers or use it for other purposes. A spokesperson for BlockFi stated that while they "make every effort" to provide customers with access to their funds, the lender was uncertain what it will do with SVB's remaining assets, currently held in a bankruptcy trust.
BlockFi's interest accounts are a popular product, enabling users to earn interest on the cryptocurrency they have in their wallets. Unfortunately, these are only available to customers outside the United States and offer rates ranging from 4.5% to 9.75%.
Rocket Lab, a startup that has grown into a $2.5 billion company publicly traded on Nasdaq, is renowned for its Electron rockets. These vehicles are small but capable of transporting satellites into low Earth orbit and cost just 5.7 million dollars per launch.
In addition to Electron, Rocket Lab plans on building a larger spacecraft called Neutron that will take people into orbit. This marks an important development for the space industry since it brings Rocket Lab closer to SpaceX and Blue Origin who are both developing human-rated crew capsules.
The new rocket could launch up to 8,000 kilograms into orbit, more than twice the weight of an Electron rocket. This means it can carry multiple payloads simultaneously, which could be an attractive option for many companies who require multiple satellites in orbit.
NASA is particularly encouraged by this development, as they have long desired to send satellites to the moon. NASA hopes that this new rocket will increase commercial launches to the lunar surface - a major objective of theirs.
Another key characteristic is the design of this spacecraft to be reusable, something many other private space companies are working toward. Unlike SpaceX's self-landing boosters that don't need human assistance, Rocket Lab's return vehicle requires human intervention as it gets snagged by a helicopter upon impact with Earth.
According to Rocket Lab's SEC filing, it had an aggregate balance at Silicon Valley Bank of $38 million that represented 7.9% of its total cash and cash equivalents as of December 31 2022. However, the space company is uncertain if it will release that money or attempt to recover it later.
Last year, Rocket Lab successfully launched six Electron vehicles and announced plans to make more. To this end, the company built a new launch site at Wallops Flight Facility on Virginia's Eastern Shore with an investment of $20 million and state grant money from VDOT amounting to $5 million. It is anticipated that their first launch will take place early 2020.
Vox Media owns and operates news-and-opinion websites as well as new media channels like Recode, SB Nation, Eater and Vulture. In addition, they own various other media properties.
Established in 2003, Vox Media now employs 701 personnel at its headquarters in Washington, DC. Their websites cover a range of topics with an emphasis on technology and politics.
Recently, the company has raised money to purchase digital media properties such as Group Nine Media's The Dodo animal site; Thrillist, a food website; and NowThis, a social-first news site. Furthermore, it is believed to have met with other companies to discuss potential acquisitions of its other media properties, according to someone familiar with the matter.
SVB has been a crucial financial partner for venture capital-backed companies, helping them invest rapidly and conveniently. That has become especially crucial in the past 18 months when interest rates have gone up and riskier tech assets have become less appealing to investors.
But as SVB began to falter, many of its clients began withdrawing their money from the bank. This was primarily due to SVB's investment in bonds which have lost value due to increased interest rates by the Federal Reserve.
Bankers often take deposits from clients and invest them in relatively safe securities like bonds. While this was once common practice, due to the recent slowdown in venture capital and tech investing generally, those bonds have lost value.
Many startups were left in an awkward spot. According to several of them, their founders were trying to persuade them to withdraw at least two months' worth of "burn" cash - money that would cover expenses while their company is still growing.
Other venture firms were sending messages to their clients advising them to shift their funds into safer, low-risk assets like Treasuries and opening other bank accounts.
Other banks have since folded, including Silvergate which shut down earlier this week due to depositor panic. The FDIC has taken over Silicon Valley Bank but how much customers will recoup remains uncertain.