The effect of the SVB bank collapse on orthopedics.

BACKGROUND – First, a little context. SVB is not a normal consumer bank, but it “was” the 16th largest in the US. SVB is a bank that invests and supports startup businesses. At my first startup Novalign back in 2008, we took $5M of SVB cash in exchange for equity in our company. At YE 2022, SVB had $209B in assets and about $175B in deposits. 

THE EVENT – On March 10th, SVB because insolvent after businesses withdrew their money in a panic. SVB had made some bad investments and had to sell off assets to stay solvent. Once this news spread, there was a run on the bank. The FDIC has taken over SVB and is looking for a buyer.

EFFECTS ON ORTHO – Many ortho startups have loan agreements, revolving credit facilities, and other relationships with SVB Bank.

Below are a couple examples of publicly traded ortho companies with some SVB exposure today.

Si-Bone

Based on Si-Bone’s 10-K report, Truist believes the vast majority of its money sits in separately managed accounts not with Silicon Valley Bank. However, the company has a $51 million credit facility with the bank. That includes a $36 million term loan and $15 million revolving credit line. Truist also says Si-Bone has an uncommitted $15 million term loan accordion available at Silicon Valley Bank’s discretion.

Treace Medical Concepts

Treace borrowed $50 million under a term loan with MidCap and $4 million under a revolving loan facility with MidCap in April 2022. Term loan proceeds repaid a term loan obligation with CRG and an early termination fee to Silicon Valley Bank amounting to $34 million. That included principal of $30 million, interest of $400,000 and fees totaling $3.7 million. However, Treace has no outstanding debt with Silicon Valley Bank following the repayment. It has an additional $900,000 in cash pledged to Silicon Valley Bank as collateral for its corporate credit card.

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But this is not the problem.

SI-Bone and Treace are strong growing companies who just happen to have exposure.

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The REAL problem will be the 2nd and 3rd order effects on startups that need funding in the future.

The SVB collapse will spook investors for a few months in investing or re-investing in ortho startups. Unfortunately, small ortho companies seeking seed capital or Series A will have fewer sources to pull from.