The Federal Deposit Insurance Corporation’s decision to take over Silicon Valley Bank on Friday is likely to leave many digital health companies scrambling to pay employees and suppliers.
SVB, the nation’s 16th largest bank and headquartered in Santa Clara, California, is a major bank for technology companies, startups, and venture capital firms. The bank said on its website that it had $78.8 billion in healthcare deposits and investments as of December.
Experts say the failure of SVB is another sign that the digital health venture funding market has long since passed its peak. Funding has slowed significantly from its 2021 peak. Although total funding for 2022 is the second-best year since Digital Health Business & Technology began tracking data in 2010, but the fourth quarter was the lowest total quarterly funding in five years. Most experts say that 2023 will be worse.
“We’ve had a long time with very low interest rates, essentially free money, and we’ve been hard,” said Matt Wolf, director and senior healthcare analyst at consulting firm RSM. could return to such an environment.” “This is the environment that digital health executives need to get used to.”
The collapse of the SVB and the rapid takeover of the FDIC prompted a flight of depositors on Thursday. Notably, the FDIC did not wait until the end of business to acquire the bank, as is often the case in orderly dissolution of a financial institution.
The FDIC established the Santa Clara National Deposit Insurance Bank and immediately moved all insured deposits into it at the time of closing. The regulator said all insured depositors will have full access to their insured deposits by Monday morning at the latest, uninsured depositors will receive their shares. advances and dividends received, and the possibility to pay additional dividends when bank assets are sold. Customers with accounts exceeding $250,000 are required to contact the FDIC.
The FDIC said the bank had total assets of $209 billion at the time of bankruptcy. A report from S&P Market Intelligence states that 97.3% of SVB’s deposits are uninsured.
Bank of the digital health economy
SVB is the bank for many digital health startups and venture capital firms. According to data cited on its website, the bank has been used by 76 percent of venture capital-backed initial public offerings in the healthcare sector since 2020.
Its digital health clients include home health provider DispatchHealth, which received funding from SVB for a $330 million funding round in November; Oak Street Health primary care company, received a $300 million line of credit from SVB (worked with Hercules Capital on credit facilities) in November; and physician support company Privia Health. SVB says it has $100 million in financial commitments to Privia, according to the bank’s website.
DispatchHealth said its business will continue to operate normally and submitted additional inquiries to the FDIC. Privia and Oak Street Health did not respond to requests for comment.
In the hours before the FDIC moved in, digital health customers with uninsured accounts tried to withdraw deposits from SVB while other banks called for deposit guarantees, a financial analyst said. The main requested anonymity to comment.
Michelle Longmire, CEO of clinical trial technology company Medable, say on Twitter She was “sad but also extremely relieved to report, I have successfully withdrawn money from the bank.”
The rapid failure of SVB forced companies to change some of their plans.
“One of our companies is in the middle of a [capital] lift up. Scott Kolesar, co-founder and chief executive officer of venture capital firm Caduceus Capital Partners, said ahead of the SVB news, the company simply changed its guidelines for transferring funds to another bank.
Companies that fail to pull their assets out of the SVB in time struggle with the possibility of losing hundreds of thousands of dollars from uninsured accounts.
“The most obvious immediate impact is on the protection, safety and security of companies’ cash reserves in the region,” said Bill Geary, co-founder and general partner of venture capital firm Flare Capital. that investment portfolio. “The big depositors are not venture capital firms or growth companies or private equity firms, but the portfolio companies themselves that are funding their operations, paying for suppliers and their employees.”
Experts say companies that already use SVB will have a hard time paying suppliers and employees with just $250,000 in their accounts. Ashley Tyrner, CEO of FarmboxRx, a company that delivers food as medicine to Medicaid and Medicare recipients, told The Associated Press that a large portion of her business profits are now locked in.
Kolesar said his firm will spend time with portfolio CEOs to address secondary impacts and take any necessary remedial action.
The Associated Press contributed.
This story first appeared in Digital Health Business & Technology.
