Health tech funding crunch tightens
Health tech and life sciences investors scrambled to shore up their portfolio companies in the wake of Silicon Valley Bank's historic failure last week.
Why it matters: Health tech has already had a funding crunch. This development may mean an even tighter squeeze, at least for the near-term.
What they're saying: Although the FDIC vowed to make all SVB depositors whole, investors and advisers are suggesting portfolio companies and clients tighten their belts in preparation for hard times ahead.
- "Take a look at your cash flows and tighten up your expenses even further if you can," says Arkitekt Ventures managing director Enke Bashllari.
- "I have VC clients writing the checks to later-stage private companies, and right now a couple of VC funds have their money tied in SVB — those deals were on hold as of Thursday," says Snell & Wilmer partner Bardia Moayedi.
- "We already saw a huge dip in valuations" before SVB's fallout, says Moayedi, who chairs the firms technology group and co-chairs its life sciences group. "Now with hesitation in the financial markets with cash, liquidity and investment, it's going to be much harder for startups to get funded."
- "This shock to the system will have ripple effects in fundraising for the next six to 12 months, so extending the runway is even more important now," says Arkitekt's Bashllari, whose firm invests in early-stage health tech.
By the numbers: Per SVB's Q4 financial highlights, 12% of the bank's $173 billion in deposits came from life sciences and health care, Axios' Tina Reed writes.
- SVB claimed to be the bank to 44% of 2022's venture-backed tech and health care IPOs, and 55% in 2021, Axios' Kia Kokalitcheva reports.
Meanwhile, contagion spreading to regional banks is keeping private equity investors awake at night.
- Many lower middle-market PE-backed companies count those banks as their lenders, says Brad Haller, senior partner, mergers and acquisitions at West Monroe.
- With rising interest rates fanning the flames of the current crisis, Haller predicts regional bank mergers to come — shrinking the pool of lending sources for future sponsor deals.
- Haller says private equity portfolio companies are aggressively moving money to Big Four banks and away from regional depositors.
- Snell & Wilmer's Moayedi says he's working on several M&A deals that were close to the finish line but have halted completely as of last week.
- On the earlier-stage side of the market, Newchip Accelerator CEO Andrew Ryan is advising the startups in its accelerator to "pull out anything over $250,000 out of regional banks, especially ones in tech, for now."
The intrigue: SVB Financial Group confirmed it is shopping its holdco in a deal that would exclude the commercial bank, Axios' Michael Flaherty reports.
- That would include the company's health care investment banking arm SVB Securities, nee Leerink Partners, which announced it would continue operations independently and unimpeded by SVB.
- SVB Securities made a name for itself in health care investment banking over the last year, advising on a handful of notable deals.
What we're watching: Sources tell Axios there may not be appetite for a carveout of that division on its own — but whoever gets SVB Securities presumably also gets its engagements (of which there are quite a few).