The bank’s shares fell more than 60% Thursday, closing around $106 — well off its 52-week high of $597. That led to a broader decline among bank stocks, with the Nasdaq Bank Index falling 8%.

The significant drop led to deep concern around the venture world — SVB has relationships with more than 50% of all venture-backed companies in the U.S. and countless VC firms — around the bank’s liquidity and balance sheet strength.��

On a call with venture capitalists, Silicon Valley Bank CEO told them to “stay calm” and that the bank has “ample liquidity to support our clients with one exception: If everyone is telling each other SVB is in trouble, that would be a challenge,” according to a .

That same report said New York-based venture firm sent an email to its founders advising them to “only keep minimal funds in cash accounts at SVB,” that is, funds of up to $250,000” and that “SVB is in a severe cash crisis.”

Thursday’s dramatic turn came after SVB said it would sell $2.25 billion worth of stock — including $500 million worth of shares to private equity firm — to shore up its balance sheet.

“We are taking these actions because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses,” the bank said in a to shareholders.

Dealing with a changing market

Silicon Valley Bank’s issues are certainly related to the rocky economy that is being especially felt by the tech and startup sectors.��

During the recent venture capital boom, the bank was flush with cash as private companies raised huge sums of fresh capital at sky-high valuations. That cash was stuffed into banks such as SVB — a leading institution in the startup and venture world.

However, as the market has slowed with rising interest rates, that cash has dried up as deposits by startups have dipped amidst a drop in venture funding even they continue to burn cash.

In a to investors, SVB said client cash burn “remains about 2x higher than pre-2021 levels and has not adjusted to the slower fundraising environment,” seemingly illustrating that startups have not reversed their previous patterns of spending.

The bank said it expects cash burn to remain elevated for the first half of the year and expects venture investment in the U.S. to be down about $120 billion to $140 billion this year.

That issue is coupled with the fact that during the high times in venture, SVB made the decision to invest in low-yield securities — which produce little return, especially when viewed in unison with rising interest rates.

The bank has now sold $21 billion of its securities portfolio, which produced an after-tax loss of $1.8 billion in Q1.

Too big to fail?

The 40-year-old banking titan has become synonymous with tech startups and the valley over the decades.

SVB held $212 billion in assets and $342 billion in total client assets as of the end of last year.��

The bank’s venture capital/debt-focused arm — SVB Capital — has worked with more than 760 unicorns over the years and as of mid-2022 had $8.8 billion assets under management.

SVB’s rolodex of venture firms it does business with is a who’s who of money in the valley — with names such as , and among the most prominent.

According to data pulled from Crunchbase, the bank participated in 75 founding rounds last year — mainly involving venture debt — that totaled $5.7 billion. That included leading a $200 million venture debt round for San Jose-based .

That deal number is likely low, as many private companies do not publicly divulge debt financings — but nevertheless shows how intertwined the bank has become to the tech startup ecosystem.

In 2021, SVB took part in 73 rounds that totaled $3.1 billion, per Crunchbase.��

Thus far this year, the bank has participated in eight announced rounds, including leading a $30 million debt round for San Francisco-based .

The payments processing startup from San Francisco is seeking to raise around $2.5 billion, , which would raise Stripe’s valuation from $55 billion to $60 billion.��

, which led Stripe’s Series C and contributed to its Series E (according to Crunchbase data), contributed $1 billion to the fundraising efforts per the report.��

Stripe’s raise will likely not go toward bolstering the company’s operations, . Instead, the company will use the funds to resolve the expiring stock units held by employees.��

Collapsing under late-stage pressure

Stock options are a crucial tool for tech startups to recruit and retain valuable employees, and several veteran members of Stripe also have stock units that are set to expire this year. Stripe is considering going public or facilitating a private market transaction to allow employees to liquidate those assets.��

Stripe’s next moves could pave the way for other late-stage, high-value companies grappling with the same problems. It’s the fifth-highest valued startup on , under , owner and .

The company, which spent the majority of its last 12 years flourishing, is now reckoning with a frosty market. The startup was valued at a high of $95 billion back in March 2021, when the company raised a $600 million Series H round. At the time, co-founder said he had .��

That valuation was, reportedly, later cut down to $74 billion in July and amid a funding pullback. But Stripe’s current reported valuation of $55 billion is still light years ahead of where it was in 2020, when it was valued at $36 billion.��

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Chances are you have about Facebook’s that sent its stock down sharply in after-hours trading. The trend continued this morning, with Facebook’s equity shedding around 18 percent of its value at the open.

The company’s repricing by public investors flips several narratives on their head. First, that Facebook’s model, and perhaps the social media corporate method itself, allowed the company to maintain operating margins in the 40s.

Facebook’s Q1’18 operating margin was . In its most recent quarter, operating margin was . Looking ahead, Facebook expects future operating margin to land in the “.”

Second, that leading tech stocks could do no wrong. It’s now well-known that a has been driven by outsized technology wins. The biggest tech companies — five of which were worth over $4 trillion recently — kept the public game afoot as a group, each putting up even better earnings results as time went along.

It seemed like that would persist in the second quarter, with both Alphabet and Microsoft beating expectations. However, Facebook’s disastrous earnings, coupled with , have dispelled some of the magic.

Each of these changes impacts startups. The first issue, the problem of rising costs related to running a social media company, implies that startups building inside the market niche can expect either higher content moderation costs at scale than they did before, or that they must find a different approach to growth. Slower growth, of course, is a contra-valuation tonic.

And the second lesson shows that the great valuation boom that added $1 trillion in value to the industry’s biggest winners in about a year could be coming to at least a pause, if not a long-term finale. If that is the case, more than just social-focused startups could see their worth nipped in the private markets.

Cohorts

But Facebook is harming itself and the yet-to-go-public alike. It’s also not a good day for Snap and Twitter either. The two firms that have long toiled in Facebook’s shadow as smaller, less profitable – and less consistent in terms of both revenue and user growth – public social media firms.

The Menlo Park Meltdown has Twitter down 3.5 percent as of the time of writing, and Snap is off 3.4 percent.

Notably, Twitter has worked through its own molting period in recent years, working to clean up Nazis and bots alike. Snap has fewer problems of that sort of issues but is a walking cost factory. So Facebook’s recent lessons still apply. Snap just started teaching them first, ironically.

Things are still fresh, and surprise from Facebook still new. Things may come back. But today you can be glad that you . The so-called smart money didn’t see any of this coming.