Silicon Valley Bank seizure leaves a massive hole — and a large opportunity — in the world of climate finance
A view of Silicon Valley Bank headquarters in Santa Clara, CA, after the federal government intervened upon the bankâs collapse, on March 13, 2023.
Nikolas Liepins | Anadolu Agency | Getty Images
Silicon Valley Bank was the go-to for startups seeking bankers who understood the startup life and balance sheets. That was especially true for the cohort of startups being built and scaled to address climate change.
After a very stressful weekend for many startup founders and investors, banking regulators hatched a plan to backstop SVB’s deposits, ensuring that depositors won’t lose their money.
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Founded in 1983 specifically to help startups, SVB had a strong and established business in climate, boasting 1,550 climate tech and sustainability clients, according to its website.
“Silicon Valley Bank had a very good reputation in the energy transition space and were willing to put their money where their mouth is, unlike many of their peers,” said Mona Dajani, the head of renewable energy and infrastructure law at Shearman and Sterling.
“Many clean energy companies banked with SVB because they had an established and dedicated clean energy practice and they were perceived to have more experience in the clean energy space than most regional and big bulge bracket peers,” Dajani told CNBC.
But the climate space has grown up since SVB started, and that paves the way for new lenders to serve the market.
“Fundamentally, the companies that are coming out climate right now have real strength. These are foundational companies, and people are going to want to lend to them because it’s good business,” explained Katie Rae, the CEO of The Engine, an accelerator and venture fund focusing on tough tech, including climate startups.
“Just in the last three days, I probably have 50 emails in my inbox from different providers saying, ‘Hey, I know SVB is not in good shape. We also do venture debt.’ So many are going to emerge,” Rae told CNBC in a phone conversation on Tuesday.
Wind turbines operate at a wind farm, a key power source for the Coachella Valley, on February 22, 2023 near Whitewater, California.
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Understanding how startups work
Venture-backed startups are an unusual type of business. In their early stages, they may not have cash flow, revenues, or even customers. Instead, they rely on venture funding, where investors offer cash in exchange for equity, hoping that the startups prove out their technology, find customers, and eventually grow into giants.
Providing banking to those kinds of customers requires special skills and an appetite for risk.
“Nobody understands startups as well as Silicon Valley Bank and how to lend to them,” says Zachary Bogue, a long-time tech investor and cofounder of DCVC.
“I envision a startup’s application getting simplify annihilated by a big bank’s risk committee,” Bogue told CNBC.
That was exactly Bill Clerico‘s experience back in May 2009. When Clerico moved to Silicon Valley with Rich Aberman to grow their fintech company, WePay, they had a Bank of America small business account, but the account didn’t have the services the startup needed.
“Silicon Valley Bank understood that even though we may have only had $10,000 or so in deposits at the time, we had a lot of potential,” Clerico told CNBC.
As it turned out, SVB was right to bet on Clerico. WePay was acquired by JP Morgan Chase in December 2017.
“That early investment in our relationship paid off,” Clerico told CNBC. “Over time our deposit balances grew to hundreds of millions, we borrowed millions from them in venture debt, and we processed billions through their accounts.”
In Jan. 2022, Clerico launched Convective Capital, a $35 million venture capital fund investing in wildfire technolog. He ardently hopes somebody can fill the gap left by SVB.
“Some folks may conflate their balance-sheet-driven meltdown with the failure of this startup-focused business model — but in fact, I think that banking startups continues to be a great business and a role that someone needs to fill,” Clerico told CNBC. (Notably, Clerico is an angel investor in Mercury, a startup working to meet this need.)
“I hope SVB and their business model persists in some form,” Clerico said.
The ‘1,000-pound gorilla’ of venture debt lending
In the climate tech ecosystem, SVB was especially prominent in making loans to companies with venture capital funding, known as “venture debt.” It’s essential for startups who are still not generating enough cash flow to be self-sustainable, especially when they are between funding rounds.
“It adds a little bit to the capital that they’ve raised, extends their runway a little bit and gives them more time to make progress on their business,” Rae told CNBC. Venture debt can add between three to six months to the runway companies already have, Rae said.
“There are other places that do venture debt, but Silicon Valley Bank was the 1,000-pound gorilla in the room,” said Ami Kassar, the CEO of the business lending consultant Multifunding.
“The concern now is that 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,” said Dajani.
That said, making loans to venture-backed companies is a riskier endeavor than traditional banking, Kassar told CNBC.
“I always wondered how they managed to have the regulators allow them to have such a heavy concentration of venture debt,” Kassar said.
Solar panels are set up in the solar farm at the University of California, Merced, in Merced, California, August 17, 2022.
Nathan Frandino | Reuters
Climate is good business
SVB was an early supporter of climate technology, helping a lot of these companies get off the ground. But as the sector has matured, participants believe other financiers will be more willing to lend to these companies.
“Silicon Valley Bank’s early support and commitment to supporting climate tech startups certainly helped catalyze the enormous migration of capital that you’re now seeing deployed into the sector,” Adam Braun, a founder of the climate startup Climate Club, told CNBC.
For instance, SVB provided financing to 60% of community solar projects, says Kiran Bhatraju, the CEO of Arcadia, a climate technology company that, among many services, helps people connect to community solar projects.
In this, the bank “was a climate bank pioneer,” said Steph Speirs, co-founder and CEO of Solstice Power Technologies, which has built a technology to help connect people to community solar projects.
“But renewables have come a long way in the last decade and there’s now a much wider universe of potential financiers looking to get on board,” Speirs said.
That’s what Braun expects to see, too.
“I believe we’ll see many more institutions build dedicated climate practices and funds to support startups emerging in this space,” Braun told CNBC. “While SVB may have been a first mover, I don’t think the events of last week will diminish the desire to finance and support the emerging companies that are leading the rapidly growing climate tech sector forward.”
First Republic and JP Morgan are “increasingly making this category a priority,” Chauncy Hamilton, a partner at the venture capital firm XYZ, told CNBC. “More and more banks are paying attention to climate,” Hamilton said.
Mark Casady, a founder of the venture capital firm Vestigo Ventures, agrees.
“Climate solutions are too powerful a force to be stopped by the failure of a bank. The need is critical and time is not on our side to find solutions. Since this is a fundamental need, it will get more backing rather than less,” Casady told CNBC.
That transition will take time, however. And for companies working to combat global warming, time is the ultimate enemy.
“I do expect big banks to ultimately step up and provide the financing the industry needs to move forward — these projects are just too attractive and the promise of climate tech is too great. But it will take some time, and delays can be costly in the fight against climate change,” Bhatraju told CNBC.
“With all the new investment in climate tech and the opportunities ahead afforded by the IRA [Inflation Reduction Act], there is a ton of momentum. We don’t want to lose that,” Bhatranju said.
Alex Karp, CEO of Palantir Technologies speaks during the Digital X event on September 07, 2021 in Cologne, Germany.
Andreas Rentz | Getty Images
Palantir shares continued their torrid run on Friday, soaring as much as 9% to a record, after the developer of software for the military announced plans to transfer its listing to the Nasdaq from the New York Stock Exchange.
The stock jumped past $64.50 in afternoon trading, lifting the company’s market cap to $147 billion. The shares are now up more than 50% since Palantir’s better-than-expected earnings report last week and have almost quadrupled in value this year.
Palantir said late Thursday that it expects to begin trading on the Nasdaq on Nov. 26, under its existing ticker symbol “PLTR.” While changing listing sites does nothing to alter a company’s fundamentals, board member Alexander Moore, a partner at venture firm 8VC, suggested in a post on X that the move could be a win for retail investors because “it will force” billions of dollars in purchases by exchange-traded funds.
“Everything we do is to reward and support our retail diamondhands following,” Moore wrote, referring to a term popularized in the crypto community for long-term believers.
Moore appears to have subsequently deleted his X account. His firm, 8VC, didn’t immediately respond to a request for comment.
Last Monday after market close, Palantir reported third-quarter earnings and revenue that topped estimates and issued a fourth-quarter forecast that was also ahead of Wall Street’s expectations. CEO Alex Karp wrote in the earnings release that the company “absolutely eviscerated this quarter,” driven by demand for artificial intelligence technologies.
U.S. government revenue increased 40% from a year earlier to $320 million, while U.S. commercial revenue rose 54% to $179 million. On the earnings call, the company highlighted a five-year contract to expand its Maven technology across the U.S. military. Palantir established Maven in 2017 to provide AI tools to the Department of Defense.
The post-earnings rally coincides with the period following last week’s presidential election. Palantir is seen as a potential beneficiary given the company’s ties to the Trump camp. Co-founder and Chairman Peter Thiel was a major booster of Donald Trump’s first victorious campaign, though he had a public falling out with Trump in the ensuing years.
When asked in June about his position on the 2024 election, Thiel said, “If you hold a gun to my head I’ll vote for Trump.”
Thiel’s Palantir holdings have increased in value by about $3.2 billion since the earnings report and $2 billion since the election.
In September, S&P Global announced Palantir would join the S&P 500 stock index.
Analysts at Argus Research say the rally has pushed the stock too high given the current financials and growth projections. The analysts still have a long-term buy rating on the stock and said in a report last week that the company had a “stellar” quarter, but they downgraded their 12-month recommendation to a hold.
The stock “may be getting ahead of what the company fundamentals can support,” the analysts wrote.
Charles Liang, chief executive officer of Super Micro Computer Inc., during the Computex conference in Taipei, Taiwan, on Wednesday, June 5, 2024. The trade show runs through June 7.
Annabelle Chih | Bloomberg | Getty Images
Super Micro Computer could be headed down a path to getting kicked off the Nasdaq as soon as Monday.
That’s the potential fate for the server company if it fails to file a viable plan for becoming compliant with Nasdaq regulations. Super Micro is late in filing its 2024 year-end report with the SEC, and has yet to replace its accounting firm. Many investors were expecting clarity from Super Micro when the company reported preliminary quarterly results last week. But they didn’t get it.
The primary component of that plan is how and when Super Micro will file its 2024 year-end report with the Securities and Exchange Commission, and why it was late. That report is something many expected would be filed alongside the company’s June fourth-quarter earnings but was not.
The Nasdaq delisting process represents a crossroads for Super Micro, which has been one of the primary beneficiaries of the artificial intelligence boom due to its longstanding relationship with Nvidia and surging demand for the chipmaker’s graphics processing units.
The one-time AI darling is reeling after a stretch of bad news. After Super Micro failed to file its annual report over the summer, activist short seller Hindenburg Research targeted the company in August, alleging accounting fraud and export control issues. The company’s auditor, Ernst & Young, stepped down in October, and Super Micro said last week that it was still trying to find a new one.
The stock is getting hammered. After the shares soared more than 14-fold from the end of 2022 to their peak in March of this year, they’ve since plummeted by 85%. Super Micro’s stock is now equal to where it was trading in May 2022, after falling another 11% on Thursday.
Getting delisted from the Nasdaq could be next if Super Micro doesn’t file a compliance plan by the Monday deadline or if the exchange rejects the company’s submission. Super Micro could also get an extension from the Nasdaq, giving it months to come into compliance. The company said Thursday that it would provide a plan to the Nasdaq in time.
A spokesperson told CNBC the company “intends to take all necessary steps to achieve compliance with the Nasdaq continued listing requirements as soon as possible.”
While the delisting issue mainly affects the stock, it could also hurt Super Micro’s reputation and standing with its customers, who may prefer to simply avoid the drama and buy AI servers from rivals such as Dell or HPE.
“Given that Super Micro’s accounting concerns have become more acute since Super Micro’s quarter ended, its weakness could ultimately benefit Dell more in the coming quarter,” Bernstein analyst Toni Sacconaghi wrote in a note this week.
A representative for the Nasdaq said the exchange doesn’t comment on the delisting process for individual companies, but the rules suggest the process could take about a year before a final decision.
A plan of compliance
The Nasdaq warned Super Micro on Sept. 17 that it was at risk of being delisted. That gave the company 60 days to submit a plan of compliance to the exchange, and because the deadline falls on a Sunday, the effective date for the submission is Monday.
If Super Micro’s plan is acceptable to Nasdaq staff, the company is eligible for an extension of up to 180 days to file its year-end report. The Nasdaq wants to see if Super Micro’s board of directors has investigated the company’s accounting problem, what the exact reason for the late filing was and a timeline of actions taken by the board.
The Nasdaq says it looks at several factors when evaluating a plan of compliance, including the reasons for the late filing, upcoming corporate events, the overall financial status of the company and the likelihood of a company filing an audited report within 180 days. The review can also look at information provided by outside auditors, the SEC or other regulators.
Last week, Super Micro said it was doing everything it could to remain listed on the Nasdaq, and said a special committee of its board had investigated and found no wrongdoing. Super Micro CEO Charles Liang said the company would receive the board committee’s report as soon as last week. A company spokesperson didn’t respond when asked by CNBC if that report had been received.
If the Nasdaq rejects Super Micro’s compliance plan, the company can request a hearing from the exchange’s Hearings Panel to review the decision. Super Micro won’t be immediately kicked off the exchange – the hearing panel request starts a 15-day stay for delisting, and the panel can decide to extend the deadline for up to 180 days.
If the panel rejects that request or if Super Micro gets an extension and fails to file the updated financials, the company can still appeal the decision to another Nasdaq body called the Listing Council, which can grant an exception.
Ultimately, the Nasdaq says the extensions have a limit: 360 days from when the company’s first late filing was due.
A poor track record
There’s one factor at play that could hurt Super Micro’s chances of an extension. The exchange considers whether the company has any history of being out of compliance with SEC regulations.
Between 2015 and 2017, Super Micro misstated financials and published key filings late, according to the SEC. It was delisted from the Nasdaq in 2017 and was relisted two years later.
Super Micro “might have a more difficult time obtaining extensions as the Nasdaq’s literature indicates it will in part ‘consider the company’s specific circumstances, including the company’s past compliance history’ when determining whether an extension is warranted,” Wedbush analyst Matt Bryson wrote in a note earlier this month. He has a neutral rating on the stock.
History also reveals just how long the delisting process can take.
Charles Liang, chief executive officer of Super Micro Computer Inc., right, and Jensen Huang, co-founder and chief executive officer of Nvidia Corp., during the Computex conference in Taipei, Taiwan, on Wednesday, June 5, 2024.
Annabelle Chih | Bloomberg | Getty Images
Super Micro missed an annual report filing deadline in June 2017, got an extension to December and finally got a hearing in May 2018, which gave it another extension to August of that year. It was only when it missed that deadline that the stock was delisted.
In the short term, the bigger worry for Super Micro is whether customers and suppliers start to bail.
Aside from the compliance problems, Super Micro is a fast-growing company making one of the most in-demand products in the technology industry. Sales more than doubled last year to nearly $15 billion, according to unaudited financial reports, and the company has ample cash on its balance sheet, analysts say. Wall Street is expecting even more growth to about $25 billion in sales in its fiscal 2025, according to FactSet.
Super Micro said last week that the filing delay has “had a bit of an impact to orders.” In its unaudited September quarter results reported last week, the company showed growth that was slower than Wall Street expected. It also provided light guidance.
The company said one reason for its weak results was that it hadn’t yet obtained enough supply of Nvidia’s next-generation chip, called Blackwell, raising questions about Super Micro’s relationship with its most important supplier.
“We don’t believe that Super Micro’s issues are a big deal for Nvidia, although it could move some sales around in the near term from one quarter to the next as customers direct orders toward Dell and others,” wrote Melius Research analyst Ben Reitzes in a note this week.
Super Micro’s head of corporate development, Michael Staiger, told investors on a call last week that “we’ve spoken to Nvidia and they’ve confirmed they’ve made no changes to allocations. We maintain a strong relationship with them.”
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