In an office building situated right on Sand Hill Road, a group of venture capital investors have been far closer to the banking crisis than any of their next-door neighbors.
All the while, hundreds of bankruptcy documents reviewed by Term Sheet, as well as interviews with limited partners and someone close to the firm, reveal a venture capital firm in the middle of a rather unusual predicament.
When the FDIC took control of Silicon Valley Bank on March 10, SVB Capital was abruptly split from the financial institution responsible for managing the payroll of its 110 employees. Silicon Valley Bank, not its parent company or other legal entities, oversaw the payment of salaries, bonuses, and benefits packages for SVB Capital’s investors and staff. The commercial bank held a substantial portion of the books and records for the venture capital firm’s parent company, SVB Financial Group—not to mention it provided a slew of bank employees to handle everything from legal to accounting functions. To make matters even more complicated, the receivership triggered default clauses in the debt documents for SVB Financial Group—which contributed to the parent company’s very high-profile Chapter 11 bankruptcy in mid-March. (A SVB Capital representative declined to comment for this story.)
“The Debtor is currently unable to access a substantial portion of its books, records, files, electronic systems and key employees,” Kosturos wrote in one of the motions, noting that, not only were 110 of SVB Capital’s employees technically on payroll at the commercial bank, but additional bank employees had been providing the legal, governance, accounting, finance, administrative and other operational functions “that are critical to the Debtor’s ability to continue its operations,” Kosturos wrote.
SVB Financial Group has asked the bankruptcy court for the authority to contract new providers for HR and payroll functions and benefits, and to transfer employment of SVB Capital staffers away from Silicon Valley Bank. (A First Citizens Bank spokesperson declined to comment)
All the while, the FDIC has blocked wire transfers and attempted to claw back payments SVB Financial Group has made to Kosturos’ firm, Alvarez & Marsal, as well as its legal firm, Sullivan & Cromwell. The FDIC has also resisted the parent company’s efforts to move funds to new bank accounts, according to documents.
Court filings make it clear that there is a serious risk to the business if these matters aren’t addressed—and quickly: SVB Capital’s 110 employees might leave.
Are you an employee or limited partner of SVB Capital or a banker at SVB Securities? Have more information? Reach out to Jessica Mathews via phone or Signal at +1 479-715-9553
See you tomorrow,
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