For startups as well as the funds and banks who invest in them, the road ahead is not simple, but it is all a normal part of the economic cycle.
The earnings season offers top-line and bottom-line numbers, as it always has, and share prices react, sometimes significantly. When Silicon Valley Bank’s parent company, SVB Financial, released its earnings report late last month, the stock fell 16% as a result of the disappointing results.
Beyond the whims of Wall Street sentiment, however, analyzing some of the data and management remarks paints a picture of innovation, entrepreneurship, and the public/private collaboration that supports it all.
The business made a $196 million provision for credit losses during the quarter. The current period saw an average client fund decline of 3%, and those greater provisions go hand in hand with the possibility of a recession.
Federal Reserve tightening and record inflation, according to CEO Greg Becker, have “almost closed the IPO market and materially reduced the pace of PE and VC investment.”
Indeed, venture capital (VC) businesses funded by the United States that went public saw a decrease, going from $237 billion a year ago to $5 billion in the most recent quarter. Early-stage and venture capital investments in the United States decreased from a record of $35 billion late last year to $5 billion most recently.
The current working environment, with all of its difficulties, “is a natural and necessary element of the innovation cycle,” he insisted. According to Becker, PE and VC firms currently have “record quantities of dry powder” that they may use to invest in businesses.
Inflows are experiencing opposition.
Chief Financial Officer Dan Beck said that public market inflows had almost ceased during the most recent quarter, with $2 billion invested with SVB as opposed to $16 billion in the third quarter of the previous year, at the results conference.
Further investigation reveals that the company expects additional slowdowns in the mortgage market as long as interest rates remain high, as well as at least modest loan growth in the technology and life sciences industries. Beck responded to questions from analysts concerning investment losses, which came to $137 million in the quarter overall, by saying that the bulk were brought on by holdings in both private and public funds.
This isn’t a zero-funding situation, according to Beck, who said on the call that “good businesses are clearly gaining fundraising territory, so we’re seeing that play out.”
(According to SVB, there is still $2.4 trillion in dry powder kept globally by PE and VC organizations.) In the call, management warned that private venture capital would decline by 20% sequentially in the current quarter.
