Silicon Valley Bank Collapse Is A Blow To Clean Energy Tech, Regardless Of What Happens In The Next 24 Hours

On March 10^th Silicon Valley Bank (“SVB”) failed. Since that time there has been a lot of shouting from all sides on what type of economy and banking system should exist and how that should inform the administration’s response to this crisis. No matter your political view there is something for everyone to latch on to in this story, from wealth inequality to moral hazard, to the family down the street who simply was keeping their house deposit there. One of the few certainties though is that this will be a massive blow to the cleantech ecosystem.

After COVID the assets of SVB rapidly grew. New spending dynamics meant money was flowing into tech vs the traditional economy, and those companies were also able to raise funds as well. This money had to be parked somewhere and a lot of it ended up at SVB. It’s rare for a bank to have a concentrated deposit base grow so quickly but, in any regard, they needed to invest it. To invest the deposits the bank targeted long-dated treasuries, with slightly higher interest rates but less liquidity. Even if this was a bad decision banks usually find a way out of it because deposits keep coming, allowing the bank to layer on other types of investments. Many banks will also typically hedge their interest rate exposure. There doesn’t appear to have been hedging though and deposit growth slowed as interest rates rose. The companies were no longer raising funds and instead using their existing funds to run the business. These dynamics meant deposits were now declining at the same time the investments, these long-dated treasuries, were losing value. As the bank announced it had to sell some of these instruments at a loss, and raise capital, people were worried and it resulted in an old-fashioned bank run.

Where does cleantech fit in this? SVB formed a dedicated cleantech practice approximately 15 years ago, well ahead of most of its financial peers. This was a signal to many cleantech entrepreneurs that this was the bank for them, and it also meant the bank typically had more experience in the sector. Recently they backed everything from community solar to energy storage. In total SVB boasts over 1,550 prominent clients in the climate technology and sustainability sector bank there. A little over a year ago SVB had even committed $5 billion in loans and investments specifically towards sustainability efforts. For comparison, larger public banks had committed amounts in the hundreds of millions. If you were a builder in cleantech you liked everything they were doing, but you now find yourself unable to access your funds.

The impact of the above is not to be understated. Even in instances where deposits are made whole, the credit facilities for companies with SVB are likely no longer available, and this is a sector where those are critical. Cleantech companies experience the valley of death where prototypes are being refined but there is no revenue growth yet. A lot of software has been successful in significantly shortening this period but multiple items, such as hardware, and even regulation, make this more of a risk for cleantech companies. Cleantech is a significant part of the current administration’s mandate but it remains to be seen if this factors into how any members think about this specific collapse, and things may even be moving too quickly for them to make the connection.

You can see a situation now where billions of available capital for these companies disappeared and taxpayers now cry out against any proposed solutions. Those very same taxpayers may then see another trillion-dollar spending bill to help support the very same climate companies, that may no longer be around. There are a few good ways to handle this but the above predictable chain of events is likely not ideal for any side.