'Long-Lasting And Widespread' Impact Of SVB's Collapse A Major Concern For Boston's Economy

Days after the second-largest bank failure in U.S. history, Boston’s life sciences and tech sectors are pivoting from worrying about short-term problems around accessing funds to the longer-term ripple effects the collapse could have on the region’s economy.

Although Boston startups and venture capital firms collectively sighed in relief as federal regulators announced Sunday they would backstop deposits from Silicon Valley Bank, industry leaders told Bisnow the bank’s failure has left a massive void in the startup ecosystem, one of the biggest growth drivers in Boston’s commercial real estate market. 

SVB was one of the largest lenders and partners that helped Boston-area startups raise money from investors and expand their footprints. Its collapse comes after a year in which the startup funding market had begun to soften, and experts worry it could further damage the ability of Boston firms to raise money.

“There’s a big SVB-sized hole in the ecosystem,” said Ari Glantz, executive director of the New England Venture Capital Association. “The individuals there, the team on the ground, have been tremendous champions for the regional startup ecosystem and built really strong relationships with folks. The bank, itself, was tailored to our industry, so I think the big question in the short term is: Who is able to step up and fill that role as a champion and service provider for these companies?”

SVB’s Boston roots are deep. It opened an office in the city in 2020 at 53 State St. which, alongside its office in Newton, employed 250 workers, the Boston Globe reported. A year later, the bank acquired Boston Private Bank & Trust, which had significant real estate investments in the region and had four branch locations that were added to SVB’s footprint in Boston, Cambridge, Wellesley and Beverly.

With this acquisition and SVB’s own ventures, the bank's nationwide portfolio included $14.4B in commercial mortgage-backed securities and an investment securities portfolio with $1.3B in affordable housing projects.

SVB had a major impact on the life sciences and tech economies, being involved in 44% of nationwide health and tech IPOs last year, according to its Q4 2022 report. Some big Boston-based life sciences players were closely involved with SVB, with Ginkgo BioWorks having one of the largest deposits held with the bank at $74M, Bisnow reported Monday.

Mayor Michelle Wu released a statement Sunday saying the SVB collapse was a "deeply distressing moment for many business leaders, entrepreneurs, nonprofits, and workers in our community," and that the city is working to support those affected. Gov. Maura Healey, in a separate statement, said she has been in contact with the White House and federal regulators "and they understand the impact of the situation on Massachusetts.”

"We know Massachusetts may be uniquely impacted by this situation due to our strong technology, innovation, and life sciences sectors and because SVB had a broad client base here, including nonprofits, individuals and others," Massachusetts Economic Development Secretary Yvonne Hao said in a statement. 

Industry leaders say that the SVB collapse adds to the murky outlook on VC funding and the growth of startups in Boston.

“While the decisive actions of the Department of the Treasury, Federal Reserve, and FDIC prevented a crisis today, the funding outlook for the industry remains uncertain,” MassBio CEO Kendalle Burlin O’Connell said in an emailed statement to Bisnow. “The investment environment was already challenging due to the industry reset and macroeconomic pressures. Startups trying to find cures and treatments for patients around the world just lost a major banking partner. The ripple effects of Silicon Valley Bank’s failure could be long-lasting and widespread.”

Tech companies drove Boston’s office leasing market in the first two years of the pandemic, but the sector began to show cracks last year. The share of Boston leasing activity from TAMI firms — technology, advertising, media and information — fell from 41% in 2021 to 24% last year, according to CBRE.

Many of those firms also began looking to give back office space last year. Boston’s overall sublease availability had a net addition of 1.5M SF in 2022, and tech companies made up 47% of the available sublease space at the end of the year, CBRE found.

Venture capital-backed tech startups are an "important" part of the demand growth Boston's office and lab markets have seen in recent years, Colliers Research Director Jeff Myers said. But the SVB collapse now adds to the existing macroeconomic pressures that have led startups to cut costs and re-evaluate their real estate footprints. 

“When you throw the banking aspect on top of that, I think it makes a lot of companies, a lot of tenants in the marketplace nervous around decision-making," Myers said. "That applies to the office market, the life sciences market, to any R&D, Flex market that really adrenalizes some of the value-add startup companies that do tend to drive some part of the Boston economy."

The Engine, a venture capital firm founded by MIT, said a handful of the 44 startups it has invested in have been affected by the collapse. On Monday, the firm was helping these companies move their money out of SVB to JPMorgan, the Boston Globe reported.

“It's important that people outside Silicon Valley understand 'tech' includes early-stage, mission-driven companies working to have a positive impact on everyday life," The Engine CEO Katie Rae said in an emailed statement to Bisnow. "I hope this means there will be more attention on the people and teams who are doing the work.” 

The firm expanded its presence in Cambridge in September, taking on a new 155K SF headquarters at 730 Main St. for roughly a third of the startups that it backs. Since its inception in 2017 when it backed 22 companies, The Engine has grown rapidly with funding rising from $200M when it was founded to $670M last year.

Michael Greeley, co-founder of venture capital firm Flare Partners, said he thinks SVB's collapse could cause some pain in the startup sector, but he doesn't think it will have a dramatic impact on commercial real estate demand. 

"You will have some companies that don’t make it and you will have some space come back to the market, but Covid will have a much bigger impact on that sector than this," Greeley said.

Adrian Mendoza, co-founder of Mendoza Ventures, said the bank’s closure will have some short-term effects on many businesses not associated with SVB as those that did have accounts with the bank are looking to transfer funds quickly.

“These trickle-down effects that a lot of SMBs and individuals say, 'This may not affect me,' it did affect a lot of the financial technology backbone infrastructure that we use in order to do payroll, benefits and insurance,” Mendoza said. “There’s a rush across every financial institution to open a bank account this week.”

For other leaders, the collapse has been a learning lesson for some companies to diversify rather than putting all their trust in one bank.

“A lot of people from Sunday night forward are very thankful that they get to worry about all the things startups usually worry about,” Glantz said. “They get to worry about a long-term question as opposed to a short-term existential threat.”