The SVB FoF sale and challenge of VC access

One of the challenges that has emerged as potential buyers explore an acquisition of SVB Financial’s fund of funds platform is continuing access to the top names in venture capital, say sources familiar with the process.

Silicon Valley Bank was seized by regulators earlier this month amid a panic run by depositors attempting to withdraw $42 billion. The bank’s holding company, SVB Financial, which filed for bankruptcy on March 17, has been exploring a sale of various business units including SVB Capital, the fund of funds.

Update: SVB Capital was not part of the March 26 sale of Silicon Valley Bridge Bank, formerly known as Silicon Valley Bank, to First–Citizens Bank & Trust Company. First-Citizens entered into a purchase and assumption agreement for all deposits and loans of Silicon Valley Bridge Bank, the FDIC said in a statement. 

The $9.5 billion FoF, which is not part of SVB Financial’s bankruptcy process, has backed some of the biggest VC funds, including those raised by Accel, Bessemer Venture Partners, Felicis Ventures, Frazier Healthcare Partners, Index Ventures, Sequoia Capital and Spark Capital, according to its website. “SVB Capital is one of our most value-added limited partners,” Doug Leone, general partner at Sequoia Capital, stated in a testimonial on the website.

The firm’s most recently closed fund of funds, Strategic Investors Fund X, raised $1.25 billion in 2021. That vehicle generated a TVPI of 1.07x and IRR of 8.40 percent as of June 30, 2022, according to the Florida Retirement System Trust Fund.

Numerous shops have taken a look at the FoF platform as part of the strategic options process run by Centerview Partners and Alvarez & Marsal, according to two sources with knowledge of the process. “Everyone has taken a look,” one of the sources said.

Opportunity exists as well for a straight secondary sale of LP fund stakes, though that is more likely based around holdings on SVB Financial’s balance sheet or through its private wealth platform, sources said.

One name that has emerged as a natural buyer of either the entire platform or through a large secondary is StepStone Group, which acquired VC-focused secondaries and fund of funds platform Greenspring Associates in 2021.

StepStone has $134 billion in AUM and last year closed one of the largest VC-focused secondaries funds on $2.6 billion, affiliate title Secondaries Investor reported at the time. The pool was raised by the Greenspring team, according to the story. A spokesperson for StepStone declined to comment.

The size of the SVB portfolio may put it out of reach of some smaller secondary players. For example, Industry Ventures, which bought at least nine VC fund stakes from Washington Mutual during the Global Financial Crisis, has about $5 billion in AUM and its most recent secondary fund closed on $850 in March 2021. In 2009, Industry paid $3.5 million for three FTV Capital fund stakes and agreed to pay $3.2 million for stakes in six funds managed by Arch Venture Partners, Madrona Venture Group, Maveron and others. It also agreed to pick up the remaining unfunded commitments for the funds. An Industry representative declined to comment.

SVB’s multibillion-dollar portfolio of fund stakes is considered high-quality, and purchase of the platform could represent a strong move by a third-party buyer that wants to form relationships in the VC world. However, a concern among potential buyers is that without the SVB branding and operations, access to top VCs may not be as robust for a third-party buyer.

SVB was able to form relationships with the biggest names in VC in part because of its business model. The firm provided capital to their start-ups, served as their custodian and became an LP in their funds.

If a new buyer isn’t going to provide that kind of holistic service, it may not be able to continue the same sort of deep relationships that 40-year-old SVB developed over an extended period of time. “SVB had deep relationship access, which might not carry over to a new buyer, [that is] they might lose part of their roster,” said a FoF manager who asked not to be named.

Another fund of funds executive said a big concern for potential buyers is that they may end up overpaying for a business that turns out to be weaker “without the bank’s money going into the venture companies and the associated [GPs]. At the right price, it might be worth the risk on the clients and GP relationships,” the executive said.

A buyer with an existing built-out VC platform and deep relationships would make the most sense. And, if a platform buyer doesn’t materialise, the situation may represent a major secondary opportunity. That’s some of the chatter we’re picking up these days.

Email me with thoughts or tips if you’ve heard anything or connect with me on LinkedIn.

Additional reporting by Lawrence Aragon.