While market volatility is dampening financing activity at larger tech companies, executives at Silicon Valley-based SVB Financial Group are optimistic that the retreat won’t spread to smaller startups and the venture-capital firms that fund them.
Technology stocks have been sliding after a meteoric rise earlier in the COVID-19 pandemic, with the tech-focused Nasdaq Composite Index dropping nearly 19% this year. Lower valuations have helped dissuade large private tech companies from going public. Venture capital-backed public listings were down about 85% in the first quarter compared with the last three months of 2021, according to Pitchbook data.
Public markets will probably see “softness” for a few more months as investors settle on new trading levels, SVB Financial President and CEO Greg Becker told analysts Thursday during the company’s quarterly earnings call.
But it is likely “too soon to assume a broad pullback,” due partly to continued strength in early-stage investments and vast amounts of cash that venture-capital firms have yet to invest, Becker wrote in a letter to investors.
“If a pullback did occur, we would expect it to be short-lived, given the record amounts of VC dry powder still on the sidelines that investors need to put to work,” he wrote. “Over the long term, we expect the tailwinds supporting the innovation economy to remain intact.”
The tech sector’s slump led to lower demand for SVB’s investment banking services during the first quarter. Revenues in that business fell to $93 million, down 25% from the fourth quarter of 2021 and 35% from the year-ago quarter.
But Santa Clara, California-based SVB also saw its loans rise to $68.7 billion, up about 3.6% from the prior quarter and 44% from a year earlier.
The $220.4 billion-asset parent company of Silicon Valley Bank outperformed expectations for net interest income, according to Wedbush Securities analyst David Chiaverini. SVB raised its guidance for both net interest income and loan growth.
The company reported “another excellent quarter in spite of fears that public market volatility would drive a slowdown” at SVB’s tech-focused clients, Chiaverini wrote in a note to clients.
The updated guidance seemingly provides some relief from worries that SVB’s growth “would stall out” as interest rates rose and tech valuations fell, wrote Brian Foran, an analyst at Autonomous Research.
SVB’s share price jumped 8.62% to $546.52 in Friday afternoon trading, even as the S&P 500 index fell by 2.55%.
Despite the slowdown in public markets, there is “still a lot of positive momentum” and “people are feeling good” about investing in innovative companies, Becker told analysts.
“Money still wants to be here, and that’s a good thing,” he said.
SVB is enjoying strong loan demand from companies in the private equity, tech, life science and health care industries, Becker wrote in his letter.
During the first quarter, SVB grew its commercial client base by 1,700 — among the biggest increases the company has ever reported and an indication that activity in early-stage startups remains “incredibly strong,” Becker told analysts.
The company also announced that Kay Matthews has become the new chair of its board of directors. Matthews, the first woman to hold that spot, has been on SVB’s board since 2019 and previously held top roles at the consulting firm Ernst & Young, where she worked for 36 years.
She succeeded Roger Dunbar, who retired after 10 years as chair and had been on the board since 2004. The company announced the transition plans in February.
