Silicon Valley Bank's failure — the largest in the U.S. since the 2008 financial crisis — has spawned shockwaves across the U.S. startup scene and sent some companies scrambling to secure funds for payroll and other expenses. 

Even before federal regulators assumed control of Silicon Valley Bank, several well-known venture capital firms on Thursday began advising portfolio companies to pull funds out of SVB. The panic was sparked by the bank's announcement that it planned to raise $2.25 billion after losing $1.8 billion following the sale of securities. 

SVB searched for a buyer to firm up its balance sheet, but the California Department of Financial Protection and Innovation stepped in and seized the bank on Friday morning and the Federal Deposit Insurance Corp. was named receiver. The bank has a host a startup and technology clients around the nation.

"The closure of SVB potentially creates a very serious situation for many Pennsylvania life sciences companies and their employees," said Christopher P. Molineaux, CEO of Life Sciences Pennsylvania, an industry trade group based in King of Prussia. "While the FDIC has taken control of the bank — an unfortunate but very necessary action — companies across the commonwealth are looking for solutions to their specific circumstances." 

At least five Philadelphia-area life sciences companies have done deals with Silicon Valley Bank. Representatives of those companies were not immediately available to comment on the bank's failure.

Molineaux said life sciences industry in Pennsylvania is not one to “wait and see.” He said many jumped into action Friday and over the weekend to put plans in place to "protect their employees, consultants and vendors in order to continue operations with as little disruption as possible, while re-routing capital held at SVB into other institutions."

Customers with deposits at SVB will be able to access their entire deposits on Monday morning, U.S. officials announced Sunday night in Washington, though the government is still seeking a buyer for the bank's assets.

The move will ensure that startups and tech companies get access to their full deposits in a timely manner.

U.S. regulators invoked a provision of banking law that allows the government to insure all deposits — not just the initial $250,000 typically insured by the Federal Deposit Insurance Crop. — citing a systemic risk to the banking system if they do not. 

The list of local biopharmaceutical and medical device companies connected to SVB includes one company that recently when public through a merger with a special purpose acquisition company, or SPAC, and another that recently sold its assets after filing for bankruptcy.

Orchestra BioMed, a New Hope medical device developer, entered into a $20 million credit agreement with SVB in December 2019. The deal provided Orchestra with up to $10 million for development and general corporate expenditures over the next 12 months following the deal being reached. The remaining funds were to be available to the company if it hits certain undisclosed product development milestones.

Last year, Orchestra BioMed closed a $110 million Series D financing round. In January, the company finalized an announced merger with Health Sciences Acquisition Corp. 2, a SPAC and affiliate of Medtronic and funds managed by RTW Investments. Orchestra BioMed (NASDAQ: OBIO) is now trading on Nasdaq.

On the other end of the financial spectrum, PhaseBio of Malvern negotiated a $7.5 million loan deal with Silicon Valley Bank in 2017. The company filed for Chapter 11 bankruptcy protection last year and in January, a judge approved PhaseBio's proposal to transfer its primary asset — a new drug candidate for reversing the potentially adverse effects of blood-thinning medicine — to its former drug development partner SFJ Pharmaceuticals for $32.9 million.

Another local company that had a deal with SVB was Tridiuum, a Philadelphia digital health company that secured about $24 million in debt funding from SVB in 2018. Tridiumm was acquired by Kansas-based New Directions Behavioral Health in January 2022.

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Jim Dallke and John George

Philadelphia Business Journal