Startup fundraising gets harder after SVB collapse

Saxon Baum, a partner at Tampa, Fla.-based early-stage venture-capital firm Florida Funders, said that deal making has been essentially put on hold at his firm and others he has been in contact with as investors are still managing the fallout of Silicon Valley Bank’s failure.

While Florida Funders didn’t bank with SVB and only a few of its 95 portfolio companies had deposits with the Santa Clara, Calif.-based bank, the collapse has had a chilling effect on theventure industry, Mr. Baum said. Two deals that his firm was aiming to close last week with existing portfolio companies got pushed back due to the chaos surrounding SVB’s collapse and could close later this week, he added.

“It’s definitely a ‘Let’s wait and see how everything shapes out’ situation," Mr. Baum said.

The deal-making skittishnesscomes after the number of investments in the venture sector had already slowed down over the past year with venture investors committing 35% less capital globally in 2022 than in 2021, according to analytics firm CB Insights.

SVB’s failure comes as a double whammy to the already sagging venture fundraising market since the bank was a key source of debt financing for startups. That is likely to increase the cost of equity, which had already been a central theme in the venture industry over the past year as valuations have fallen.

Some deals that were held up for a few days began clearing Monday.

Princeton, N.J.-based pre-seed venture firm 2048 Ventures had issued a term sheet to a biotech startup last week, said Alex Iskold, the firm’s managing partner. When the SVB situation began unraveling, the firm asked the founder to give it a few days, in part to make sure it had the money to fund its commitment since its SVB account was locked on Friday, Mr. Iskold said.

On Monday morning Mr. Iskold logged into the firm’s SVB account, confirmed everything was intact, and countersigned the term sheet, he said. The firm wired the money to the company Monday afternoon.

While that process was completed, the SVB collapse may yet affect future deals, he said.

“We are continuing to meet founders and continuing to invest. But I’m not saying it’s exactly business as usual," Mr. Iskold said. “If things move in an unpredictable direction we are going to pause."

2048 Ventures was already a couple of months behind on making its semiannual capital call to limited partners because of a slower deal-making pace before the SVB collapse, Mr. Iskold said. The firm had planned to make it on March 15, but because of the SVB crisis the firm pushed it to March 20, he said. A capital call is the process a venture firm uses to collect committed capital from its investors.

Clara Brenner, a co-founder and managing partner of the Urban Innovation Fund, a San Francisco-based seed-stage venture firm, said the Federal Deposit Insurance Corp.’s assurance that depositors would have full access to their funds was a relief but that deal making would need time to resume. Ms. Brenner said she expects the SVB debacle to chill the financing market for at least a few weeks.

“Everyone is still trying to figure out how to help their portfolio companies that have been impacted," said Ms. Brenner, noting that at least one due-diligence process under way at her firm would move more slowly than usual.

Some venture investors remain excited about new deals. Niko Bonatsos, managing director at General Catalyst, said he is planning to see pitches from up to 20 companies this week, as well as attend several dinners with founders and small groups in San Francisco. No founder had canceled on him, Mr. Bonatsos said. The firm even made an offer to a seed-stage company on Sunday.

“No slowdown," he said on Tuesday.