Silicon Valley Bank Collapse Impacts Gaming and Esports Companies

Silicon Valley Bank Collapse Impacts Gaming and Esports Companies

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While the majority of LA’s top companies bear no ties to the Silicon Valley Bank, one of the prominent VC fund founders has called the situation an “extinction-level event” for some startups if the FDIC fails to act swiftly.

After several big Venture Capital funds told their investors earlier in the week to withdraw their investments out of Silicon Valley Bank, the United States and UK divisions of the same shut down the bank. 

The Silicon Valley Bank is one of the publicly traded financial institutions in the United States, which “banks nearly half of the 2022 U.S. venture-backed technology and life science companies,” as stated in the company’s financial highlights presentation for the fourth quarter of 2022.

SVB’s Wednesday announcement to sell $1.25B USD of common stock and $500M of depositary shares took the market by storm. If one decides to rub the injury against more salt, SVB also revealed that it had lost about $1.8 billion in the first quarter of 2023 due to the selling of its “available for sale securities portfolio,” which included about $21 billion in security funds. .

Nasdaq paused SVB Financial Group shares Friday morning after a pre-market selloff that sent them down 68% to $34. By Friday afternoon, the FDIC had frozen withdrawals and closed SVB’s branches, putting companies with accounts there in limbo. For businesses that deal with SVB, this comes at the worst possible time, as payroll and other costs are rapidly approaching.

When venture capital firms like Peter Thiel’s Founders Fund (which has invested in Cloud9) urged their clients to withdraw their funds on Thursday afternoon, which indeed triggered a bank run that ultimately triggered FDIC to intervene. 

Coatue Management, which contributed to a $15M financing round for collegiate esports company PlayVS in 2018, and previously invested $300M in Pokémon GO creator Niantic, both advised investors to pull their money.

Of SVB’s total deposits of $173.1B as of Dec. 31, 2022, $151.5B were uninsured in its U.S. offices, and $13.9B were held in overseas branches. 

While that is in line with the FDIC’s Deposit Insurance Fund rules requiring an insured deposit ratio of 1.35%, startups and VCs with accounts at SVB were worried about liquidity, fueling the bank run. Many of these new businesses are associated in some way with gaming or electronic athletics, or both.

If there is any positive news to be reported, it would be only that several Los Angeles-based esports organizations bear no ties with the Silicon Valley Bank in terms of business and other trades. 

Several Los Angeles-based esports groups were also contacted to assess the fallout from SVB’s closure on Friday. FaZe Clan, Sentinels, Immortals, and TSM added that currently, they do not have any business deals with Silicon Valley Bank. 

Cloud9 and 100 Thieves are yet to comment on the same following the situation with the SVB. So far it’s been known that neither of the organizations has been affected by the ongoing chaos around the SVB. 

An NRG Esports spokesperson stated Friday evening that the group has some accounts there but also has access to capital at other institutions.

The fate of SVB’s $300,000 donation to the SoLa I CAN Foundation’s Technology and Entrepreneurship Center “powered by Riot Games” remains uncertain. The Los Angeles-based minority-owned and -operated social impact fund, the nonprofit affiliate was awarded the funding in January. 

Also of note, Roblox Corporation said in an SEC filing Friday that about 5% of its $3B in cash and securities, or around $150M, was at Silicon Valley Bank as of Feb. 28, but also noted that “…regardless of the ultimate outcome and the timing, this situation will have no impact on the day to day operations of the Company.”

Tan added that “30% of YC companies exposed through SVB can’t make payroll in the next 30 days,” so startup founders should contact their representatives to urge the FDIC to act swiftly.

Casual Mobile Games developer, Games2Win, an Indian tech giant who received $6 million in a Series B investment which was headed by Clearstone Venture Partners also dealt in business trades with the now-defunct Silicon Valley Bank in 2011. 

The business, which has been around since 2007, offers a wide variety of casual games and boasts more than 15 million monthly users. 

The business claims that fifty percent of its downloads come from North America, twenty percent each from the United Kingdom and Europe, and eleven percent from India. There are supposedly more than 45 million average monthly users, according to their statement

As of yet, the full amount of the company’s damage from SVB’s collapse is unknown.

FAQ 

Q. Who is SVB and where are they based? 

SVB, or Silicon Valley Bank, is a bank that provides financial services to technology and innovation-focused companies, as well as their investors and partners. Founded in 1983 and headquartered in Santa Clara, California, SVB has expanded its operations to other technology hubs around the world, including the United Kingdom, China, and Israel.

SVB has played a significant role in supporting the growth of some of the most successful technology companies in the world, including Apple, Google, and Amazon, as well as many startups and emerging companies. The bank has also been recognized for its commitment to diversity and inclusion, as well as its efforts to promote sustainability and social responsibility.

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