Sources: some hedge funds are offering to buy startups' deposits at SVB for 60 to 80 cents on the dollar; filing: ~96% of deposits as of Dec. 31 were uninsured
Hedge funds are offering to buy startups' deposits stranded at Silicon Valley Bank for as little as 60 cents on the dollar …
Context & Ripple Effects
Silicon Valley Bank failed after a run that saw investors and depositors try to pull $42B on March 9 alone, per a taking-possession filing, and roughly 96% of its deposits were uninsured as of Dec. 31 — so most startup balances sit outside FDIC protection. The FDIC has promised clients an advance dividend within the next week, while sources say it is racing to sell SVB's assets and return 30% to 50% or more of uninsured deposits as soon as Monday.
Against that backdrop, hedge funds are stepping into the gap with offers of 60 to 80 cents on the dollar for stranded deposits — a market forming around the fact that many clients need to meet payroll on March 15. Some VC firms had already been telling portfolio companies to pull funds or keep no more than $250K at the bank before the failure.
First-order effects
- Cash-strapped startups can convert illiquid SVB balances into immediate cash at a 20–40% haircut ahead of March 15 payroll deadlines, trading certainty for the discount.
- The hedge-fund bids create a live market price for the uninsured deposits that the FDIC's asset sales must now beat if recovery is to exceed the 30–50% range sources cite.
Second-order effects
- Distressed-credit buyers gain a template for acquiring bank-failure claims directly from depositors, inserting a secondary market between the FDIC's dividend process and the companies waiting on it.
Third-order effects
- If founders treat a 60-cent offer as preferable to regulator timelines, deposit concentration risk gets repriced across the startup ecosystem — pushing companies toward multi-bank treasuries and making the scale of exposure documented among SVB customers like Sequoia's $1B balance harder for boards to tolerate.
The trend: Bank failures are spawning instant secondary markets in stranded deposits, where distressed buyers' discounts set the de facto recovery rate before regulators finish their own.