When A Reputable US Bank Fails; What It Means For Healthcare Sector

Last week, SVB (Silicon Valley Bank) known for being the bank of start-ups and small businesses, was taken over by the federal government sending the small business community into a panic. If you are overseas you most likely heard about it. In the US this has been front and center, and it raises the question: are any of our financial institutions safe? For now, as the government has stepped in, it seems that all amounts of cash are being covered. However, investments, CDs and the like may not be so lucky. Depending on the source, it is believed that anywhere from 40-50% of VC-backed startups banked with SVB. Although things will return to “normal” within the next couple of weeks, the impact on the innovative community will be felt for a long time.

In the healthcare sector specifically, the SVB collapse is being felt. SVB was not only a giant in the San Francisco Bay Area and Massachusetts, but a giant specifically for healthcare startups. Back in January SVB stated that it banked last year with 44% of U.S. venture-backed healthcare and technology IPOs and nearly half of venture-backed technology and life sciences companies. 12% of the $173 Billion in deposits were from the healthcare and biotech sectors. Although the Federal Deposit Insurance Corp. announced on Sunday that all depositors at Silicon Valley Bank would have access to their funds starting Monday and and that taxpayers would bear no brunt of the secured cash, it begs the question of what this all means for our sector.

SVB was known for their fast pace in providing loans for startups and thereby pushing innovation forward. There is a possibility of slow down in overall growth for startups as they work with traditional banks that do not follow the same pace SVB once did. While this will not stop innovation from being possible, the changed landscape will be important for healthcare startups to consider in their overall goals and the timelines associated with those goals. Healthcare startups and their innovations are a key part of our ecosystem and it is our hope that this episode will not have a lasting impact.