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That's right. Although there is an interesting thing to consider: if you look at page 13 of the deck they shared on Wednesday[1], it says 56% of SVB's total loa

by gcek9 4y ago

That's right. Although there is an interesting thing to consider: if you look at page 13 of the deck they shared on Wednesday[1], it says 56% of SVB's total loans are in the form of lines of credit issued to PE/VC funds, secured by their LP commitments. I imagine many if not most of those are fairly small in size, but it's possible some funds took out much larger lines of credit, secured by their future LP commitments, and were holding that cash at SVB. So we could definitely see some funds affected to varying extents. [1] https://s201.q4cdn.com/589201576/files/doc_downloads/2023/03/Q1-2023-Mid-Quarter-Update-vFINAL3-030823.pdf https://s201.q4cdn.com/589201576/files/doc_downloads/2023/03...

testfoobar 4y ago
What is this? Does this mean that if PensionFundFoo invests in VCFundX as a LP, that PensionFundFoo never actually has to fork over cash to VCFundX to give to StartupZ? Does this mean SVB accepted PensionFundFoo's commitment to VCFundX as collateral and gave a loan to VCFundX to invest in StartupZ?
- gcek9 4y ago
  Yeah, more the latter. VCFundX goes out and raises capital for a new fund, which includes PensionFundFoo as one of the LPs, and once closed, goes to SVB and says, 'hey look we have $100M in signed LP commitments for this fund we just closed' and SVB says 'great - we'll set up a line of credit for you at [x]% of that $100M that you can draw down now (or later) to do with what you want' (obviously to invest in startups, but that would also include their management fees which GPs can pull forward and use to fund their lifestyles and/or invest). And then the future capital calls from LPs, including PensionFundFoo, go to SVB to pay down any amount of that loan outstanding. The majority of VCs use this product simply to help smooth working capital needs and to be able to make new investments without needing to call capital sooner than LPs would prefer (also to juice IRRs), but there's almost certainly some minority that have basically taken an advance on their entire fund size, or at least a large portion of it. And now any of that cash still held at SVB is obviously at risk.
  - testfoobar 4y ago
    Thank you I understand. Credit Lines against commitments seems like a unique product that only a bank with domain expertise can offer.

by gcek9 4y ago

testfoobar 4y ago

What is this? Does this mean that if PensionFundFoo invests in VCFundX as a LP, that PensionFundFoo never actually has to fork over cash to VCFundX to give to StartupZ? Does this mean SVB accepted PensionFundFoo's commitment to VCFundX as collateral and gave a loan to VCFundX to invest in StartupZ?

gcek9 4y ago
Yeah, more the latter. VCFundX goes out and raises capital for a new fund, which includes PensionFundFoo as one of the LPs, and once closed, goes to SVB and says, 'hey look we have $100M in signed LP commitments for this fund we just closed' and SVB says 'great - we'll set up a line of credit for you at [x]% of that $100M that you can draw down now (or later) to do with what you want' (obviously to invest in startups, but that would also include their management fees which GPs can pull forward and use to fund their lifestyles and/or invest). And then the future capital calls from LPs, including PensionFundFoo, go to SVB to pay down any amount of that loan outstanding. The majority of VCs use this product simply to help smooth working capital needs and to be able to make new investments without needing to call capital sooner than LPs would prefer (also to juice IRRs), but there's almost certainly some minority that have basically taken an advance on their entire fund size, or at least a large portion of it. And now any of that cash still held at SVB is obviously at risk.
- testfoobar 4y ago
  Thank you I understand. Credit Lines against commitments seems like a unique product that only a bank with domain expertise can offer.