Venture capital firms and founders of digital health companies are picking up the pieces after an eventful few days tied to the failure of Silicon Valley Bank.
“We had all of our money at Silicon Valley Bank. They were our full banking partners,” said Ellen DaSilva, CEO and founder of Summer Health, a text-based pediatric care provider. “When I started the company, I would say all of the people in my life also banked with SVB.”
The popular bank for digital health companies and venture capital firms was taken over by the Federal Deposit Insurance Corp. on Friday after a run by depositors. On Sunday, the Treasury Department, Federal Reserve and FDIC said the government would fully protect all depositors from Silicon Valley Bank. On Monday, the FDIC transferred all assets from Silicon Valley Bank to a bridge bank, Silicon Valley Bank, N.A.
On its website, SVB said it had $78.8 billion in healthcare deposits and investments as of December and had worked with 76% of healthcare-related initial public offerings since 2020.
“I don't know, if I know of a single founder that I'm friends with who didn't have some type of relationship at some point with SVB,” said Ashley Tyrner, CEO and founder FarmboxRx, a food and wellness home delivery company.
Tyrner said around 14% of FarmboxRx's funds were held at SVB, a large portion of which was venture debt.
“We created the relationship there because big banks, like a B[ank] of A[merica] [and] Wells Fargo, they didn't want to give out credit. They are not as founder friendly,” Tyrner said. “So really, it was the path of least resistance.”
Dr. Justin Barad, CEO of surgical-focused virtual reality startup Osso VR, said 100% of his company's funds were held in SVB.
“In the early days as a first time founder, you don’t know what you’re doing," Barad said. "I opened an account with Wells Fargo [and] had several investors say, ‘What you are doing? You have to be with SVB.’”
While the digital health industry's short-term concerns, such as the ability to pay employees and vendors, have been addressed, uncertainty remains on how the sector will move past the bank's failure. Industry stakeholders say that while the episode has stressed the importance of bank diversification, an institution like Silicon Valley Bank remains needed to fund digital health innovators.
Hemant Taneja, CEO at venture capital firm General Catalyst, said he would like to see Silicon Valley Bank return in some form. He led an effort of more than 100 VCs to sign a letter of support for SVB, saying they’d do business with it if it was reincarnated.
“We need a bank like Silicon Valley Bank that understands how to support these innovation-oriented companies to thrive and be an important part of the ecosystem,” Taneja said.
But Taneja is also telling portfolio companies to diversify and put their money in several banks rather than rely on one.
Multiple digital health companies said banking with SVB was often the path of least resistance as it was recommended by venture capital firms and peers alike. However, the allure quickly faded as the bank reported mounting losses.
At Summer Health, contingency conversations took place in the days leading up to the bank's shutdown, DaSilva said. While the company did not need to exercise those measures, DaSilva said its three largest venture partners were supportive and offered assistance.
Similarly, Taneja said that before the federal government stepped in, he was putting together loan documents to help bankroll dozens of the firm’s portfolio customers. With relief in hand, he said the industry can return to its work of disrupting healthcare.
“It’s a brighter Monday than what we were bracing for yesterday,” Taneja said.