First Citizens acquisition of Silicon Valley Bank could mean more cash for NC startups
The First Citizens Bank acquisition of the failed Silicon Valley Bank will likely help Research Triangle Park-area startups gain access to cash. But venture capital experts warn that benefits will be more incremental than torrential.
"Having a bank that's headquartered in Raleigh that is becoming increasingly a major player in financing the tech industry has to be a good thing for the area," said Richard Warr, North Carolina State University associate dean for faculty and research. "Whether or not we'll see an immediate effect is debatable; but having that expertise now being held in a Raleigh-based bank must be good."
In a call with investors to discuss the deal, First Citizens CEO Frank Holding Jr. said he wants to help the startup ecosystem. At times, he even sounded more like something you’d hear on Shark Tank than in a stodgy bank board room.
"We are committed to continuing to help innovators, enterprises, and investors move bold ideas forward," he said. "This acquisition positions First Citizens to support that growth, both in Silicon Valley's markets and right here in our own backyard, in the Research Triangle Park."
Still, it's not usually banks that invest seed money in small startups. Clay Thorp, a general partner with Hatteras Venture Partners, compared the acquisition to a stone thrown in a pond.
"It's going to have to have a lot of ripples to get down to the everyday startup here in downtown Durham or Raleigh or some other place like that," he said. "Because banks generally are not lenders to startups."
Instead, they're lenders to somewhat established companies that already secured multiple rounds of angel and venture capital investment. Angel investors are typically friends or family of an inventor that fund a fledgling idea. If that succeeds, the inventor can take the idea to a venture capital group, like Hatteras Venture Partners, and try to raise more cash to get a company up and running. This is how new cell phone apps, computer software, or new drugs generally start out.
Historically, inventors from the Triangle area have said that this area has the brainpower to compete with innovation in Silicon Valley or Boston, but it lacks only the capital they have. While venture investments in North Carolina have increased in recent years, the combined $3.5 billion raised in 2021 pales in comparison to the $35 billion raised in Massachusetts and $156 billion raised in California, according to data published by National Venture Capital Association.
Although there's still a financial disparity, Hunter Young, the head of capital for CED, the Council for Entrepreneurial Development, says the perception is changing.
"There are way more equity investors and funds in North Carolina than ever before, helping to fuel the earlier stages," he said. "And when later-stage deals are made by out-of-region investors, they usually actually want the company to grow here because of capital efficiency among other factors."
Plus, he says this area has started to grow companies into later stages of development.
"More mature companies don’t necessarily need the geographic 'babysitting' that an earlier stage company might," he said, putting air quotes around "babysitting." "So I think when we've seen companies relocate, it's been more strategic and related to industry factors than access to capital."
Whether or not it benefits RTP directly, First Citizens rescuing Silicon Valley Bank is good for the entire ecosystem.
"The events of two weeks ago were highly destabilizing," Thorp, the venture capitalist with Hatteras, said.
Now, this new stability will benefit startups nationwide, including in and around RTP.
"First Citizens making this decision brings stability to an important part of our ecosystem. And that makes investors like me feel more comfortable to take risks."
It’s still unclear how these companies will really mesh. And even if this one banking acquisition doesn't break open a dam of newly available cash, it's another domino that can lead to a more thriving startup scene. Experts agree that even incremental changes will add up to big positives for the Research Triangle economy.