Silicon Valley Bank Collapse Hits Gaming and Esports Companies
Silicon Valley Bank (SVB) has been closed down by regulators in the US and UK, leaving a number of companies in the gaming and esports sectors in financial uncertainty. The collapse occurred after several major VC funds urged investors to withdraw their investments from the bank, causing a bank run.
SVB, which is a publicly-traded US financial institution, “banks nearly half of the 2022 US venture-backed technology and life science companies,” according to its Q4 2022 financial highlights presentation.
Loss of Confidence
The loss of confidence in SVB began when the company announced on Wednesday that it planned to raise additional capital by offering $1.25bn of its common stock and $500m of depositary shares.
SVB also announced that it had sold its “available for sale securities portfolio” for approximately $21bn of securities at an “after tax loss of approximately $1.8 billion in the first quarter of 2023.”
The fallout was immediate, with shares of SVB Financial Group being halted by Nasdaq on Friday morning following a premarket selloff that saw it fall 68% to around $34 per share. This was a drastic drop from Monday morning’s trading price of around $284 per share.
By Friday afternoon, the Federal Deposit Insurance Corporation (FDIC) was forced to take control of the bank by freezing withdrawals, temporarily closing SVB’s branches, and leaving companies that held accounts with the bank in financial turmoil.
Short-Term Solution Expected The FDIC is expected to find a short-term solution over the weekend, noting that “insured depositors would have access to their funds by no later than Monday morning” and that “customers with accounts that have more than $250,000” should contact the FDIC at 1-866-799-0959.
This news was part of an announcement by the California Department of Financial Protection and Innovation that it had created the “Deposit Insurance National Bank of Santa Clara” and that the FDIC would serve as receiver, with plans to open Silicon Valley Bank branches on Monday morning.
VC Funds Cause Bank Run The bank run that forced the FDIC to step in was caused by VC funds such as Peter Thiel’s Founders Fund (which has investments in Cloud9), who told investors to pull their money out of the bank on Thursday afternoon. Also telling investors to exit was Coatue Management, which invested $300m in Pokémon GO developer Niantic a few years ago and was part of a $15m financing round in 2018 for scholastic esports company PlayVS.
Impact on Esports Organizations in LA
A majority of esports organizations in Los Angeles that could have been doing business with SVB don’t appear to have any financial ties to the bank, which is good news for them. Representatives from FaZe Clan, Sentinels, Immortals (which includes its Overwatch League team Los Angeles Valiant), and TSM confirmed that they don’t currently have any business dealings with SVB.
Gen.G Esports CEO Arnold Hur said that while the company received a significant investment from SVB and other investors in 2019 ($46m) and worked with the bank on the Gen.G Foundation in 2020, those transactions were finished a long time ago, and investment funds are safely in other banks.
Cloud9 and 100 Thieves did not respond to requests for comments. An NRG Esports spokesperson confirmed that the organization has been impacted by the situation because it has some accounts there, but it also has access to capital at other institutions.
The collapse of Silicon Valley Bank has caused a significant impact on the gaming and esports industries, leaving many companies that hold accounts with the bank in a difficult position. However, the majority of esports organizations in Los Angeles do not seem to have any financial ties to the bank, and those that do have made moves to safeguard their money. The FDIC is expected to find a short-term solution, and insured depositors will have access to their funds by no later than Monday morning.