Bank Run

Silicon Valley Bank Dispels Rumours of a Fire Sale, Founders Fund Puts the Breaks on Investments, Raisr Gets Bailed Out From Investors.

Welcome Shareholders,   

In this daily edition of the Brags Newsletter, Silicon Valley Bank's Woes Worsen, Founders Fund Treads Cautiously As the Pace of Investments crawls to a halt, and a startup goes from Unicorn to Broke in under two years. 

So sit back, grab a snack, and enjoy!

Venture Today 👏

  • Silicon Valley Bank, which has long been considered the lifeblood of tech startups, is scrambling to keep investors from panicking after a huge gap in its reserves. 

Silicon Valley Bank's ties to the tech ecosystem have left it particularly vulnerable to the boom, with those risks becoming clear yesterday. According to a financial update released on Wednesday, SVB had to resort to a fire sale of its securities, selling off $21 billion worth of holdings at a $1.8 billion loss. In addition, the company raised $500 million from venture firm General Atlantic. Although SVB's stock had surged 75% during the 2021 market rally, the company experienced a significant setback last year, with two-thirds of its value lost. The situation worsened on Thursday when the stock plummeted by 60% during regular trading and an additional 22% after the close.

SVB, which is a major regulated bank, has traditionally been seen as a stabilizing influence for tech startups. However, recent financial actions by the bank have raised concerns among its clients. S&P has downgraded SVB's rating to BBB-only, one notch above a junk rating, causing fears of potential contagion effects. Clients may be prompted to withdraw their funds and seek alternative banking options due to the bank's acknowledged financial difficulties. This has been evidenced by the advice given by some VCs, such as Peter Thiel from Founder's Funds, who are urging startups to move their cash out of the bank.

  • Ahead of cutting its funding size by half, San-Francisco based Founders Fund has been significantly slowing the pace of investments from its existing funds. 

During the market peak of 2021, Peter Thiel's Founders Fund, which has made investments across startups like Airbnb, Palantir, and Stripe, actively participated in over 121 funding rounds that amassed a staggering sum of $10 billion. In 2022, Founders Fund's participation in venture capital significantly declined due to various economic pressures affecting the industry.

The fund was involved in only 80 rounds, a 33% decrease from 2021. The total value of these rounds was $6.6 billion, over one-third less than the previous year. It's worth noting that this amount includes the $1.5 billion Series E funding for Anduril, a defense and security firm based in Costa Mesa, California, heavily skewing the figure. 

  • U.K. Embedded Fintech startup Raisr, which was once valued at $1 billion, has been sold to a consortium of investors after filing for bankruptcy protection.  

Railsr (also known as Railsbank), was previously valued at nearly $1 billion, but is now facing regulatory and financial challenges. Its U.K. subsidiary is being audited by the FCA, while its Lithuanian unit has been barred from taking on new customers by the Bank of Lithuania. Furthermore, Railsbank had to return the money borrowed via a $20 million debt facility, following concerns about the firm's stability by the lender.

Embedded Finance Limited, supported by D Squared Capital, Moneta VC, and Ventura Capital, has acquired and recapitalized Railsr. Railsr is a banking-as-a-service and cards-as-a-service provider that acts as a Principal Visa and Mastercard issuer.

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