The FDIC take-over of the Silicon Valley Bank this weekend will hit the healthcare technology market hard, affecting not only digital health startups but health systems looking to plan their innovation strategies.
The collapse of the Silicon Valley Bank last week sent a shudder through the healthcare industry, and could have an impact on the digital health ecosystem for some time.
SVB, the 16th largest bank in the country, reportedly had almost $80 billion in deposit and investments—many from healthcare technology companies and venture capital firms—when a run on withdrawals Thursday forced the bank to shut down. Its total assets, according to federal regulators, stood at roughly $209 billion, with some reports saying more than 97% of that was uninsured.
That run was caused by an announcement on Wednesday by the bank, which said it needed money to address a $1.8 billion hole caused by the sale of a $21 billion loss-making bond portfolio consisting mainly of US Treasuries.
This, in turn, created turmoil in the banking sector, with several banks reporting rapidly declining stocks. By the end of the day Thursday, more than $80 billion in stock market value from 18 of the world's biggest banks had disappeared.
The Federal Deposit Insurance Corporation (FDIC) stepped in on Friday and seized the bank, transferring insured deposits to the Deposit Insurance National Bank of Santa Clara. Over the weekend the FDIC announced that insured depositors would have access to their money on Monday morning, while uninsured depositors would have access to at least an advance dividend and a receivership dividend.
Social media was filled with stories of digital health startups scrambling to determine whether they could make payroll, or even remain in business.
According to SVB, the bank was used by more than three-quarters of healthcare-based, VC-backed initial public offerings (IPOs) over the past three years. News reports listed some of the digital health clients as Dispatch Health, Oak Street Health—recently purchased by CVS Health--and Privia Health.
Analysts say this could affect a digital health innovation market that had been flush with cash just a few years ago, when the pandemic contributed to a surge in digital health and telehealth adoption and many banks and investment firms were eager to support these new ideas. This was also helped by federal and state actions reducing barriers to telehealth adoption and reimbursement.
The end of the pandemic, along with a struggling economy, is forcing many healthcare organizations to reassess their innovation strategies. They're pushing startups to show value and demonstrate ROI quickly.
"This is an 'extinction level event' that will set startups and innovation back by 10 years or more," Garry Tan, president and CEO of California-based startup accelerator Y Combinator, said on Twitter, adding that thousands of smaller tech companies could collapse "before the FDIC gets through its receivership process and releases the funds" that these companies need to pay bills.
The impacts of the SVB collapse might also be seen in upcoming healthcare events like ViVE and HIMSS, where innovation is a popular topic. The crisis could impact attendance and cut into the activity in the exhibit hall.
Eric Wicklund is the associate content manager and senior editor for Innovation, Technology, and Pharma for HealthLeaders.
KEY TAKEAWAYS
SVB Bank, the 16th largest in the US, reportedly had a role in more than 75% of healthcare VC-based IPOs over the past three years and counted hundreds of healthcare companies among its clients.
The FDIC has taken over the bank following its collapse, and says insured investors will have access to their money this week, though reports say roughly 97% of the bank's clients were uninsured.
The collapse will hit the healthcare industry hard, potentially wiping out many digital health startups and forcing health systems to curb their innovation strategies.