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.
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.
But this is not the problem.
SI-Bone and Treace are strong growing companies who just happen to have exposure.
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.