Informative Articles

We Live in Asymmetric Times

Mar 13, 2023

According to the SVB (Silicon Valley Bank) website, the bank had relationships with ½ of all venture backed life sciences companies.  Many of the founders of those companies had their personal capital deposited and managed by SVB Wealth Management.  Today SVB was closed after a bank run, by California regulators.  Deposits in excess of federal deposit insurance limits ($250K) may well be lost.

Aggressive interest rate increases by the Federal Reserve had caused a decline in the value of treasury bonds held by the bank, so that accounting rules required the bank to recognize or mark to market those losses when bank clients requested the return of their deposits.  The bank tried to raise additional capital to fill the gap, and failed.

The incident should underline for life sciences founders the risks associated with mirroring personal investments with those of their companies.  On the surface, there might appear to be no problem with such a redundancy; the relationship is convenient, and in this case, after all, we are talking about the thirteenth largest bank in the US.

I have enjoyed getting to know some remarkable life sciences founders through my podcast and at various industry conferences.  One of the things I have most loved are the selfless, driven people who put everything on the line to improve the lives of patients.  I have also, sadly, been surprised by the lack of financial sophistication of those same founder angels.

This event should encourage all founders to review their personal financial plans to be sure that they balance the risk that they necessarily have in their businesses.  Personal investments, even more when those are limited, should ballast the scientific and economic risks of a business dependent upon the results of clinical trials and the vicissitudes of the FDA.

Investment advisory services offered by Bay Colony Advisors, a registered investment advisor, doing business as Asymmetric Capital Advisory.   No Advice may be rendered by Bay Colony Advisors d/b/a Asymmetric Capital Advisory unless a client service agreement is in place.  Bay Colony Advisors does not provide accounting, tax, or legal advice.  Insurance is offered separately by Tim Dougherty as an independent insurance broker.  Bay Colony Advisors does not supervise the insurance activities of Asymmetric Capital Advisory or Tim Dougherty.  No part of this newsletter should be considered investment advice.  If your financial circumstances have changed, you should contact your investment advisor representative.  Principal Office:  86 Baker Avenue Extension, Suite 310, Concord, MA 01742.  Phone: 978-369-7200.