Silicon Valley Bank collapse is causing a financial crisis for California’s wine industry

The wine industry is facing an unprecedented financial crisis amid the fallout of Silicon Valley Bank, the leading bank for California wineries. 

Silicon Valley Bank was closed Friday by the California Department of Financial Protection and Innovation after a bank run by its venture capital customers. For nearly 30 years, the bank has been the go-to financial institution for the California wine industry. But now, wineries are locked out of their Silicon Valley Bank accounts — and they don’t know if, or when, they’ll get access to their money. 

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Kendra Kawala, the co-founder of Maker, a Bay Area canned wine company, called the news “jarring” as Silicon Valley Bank has been “the gold standard within the wine industry.” When she started Maker four years ago, “it was almost a no-brainer who the right banking partner was.”

A new bank, the National Bank of Santa Clara, has been created by the Federal Deposit Insurance Corp. to hold the deposits and assets of Silicon Valley Bank, and it will begin operating by Monday. But only accounts that fall below $250,000 are insured by FDIC; any winery with funds above that will have to wait an undetermined amount of time to find out if the additional amount will be paid back, partially or in full. 

Rob McMillan, the founder of Silicon Valley Bank’s wine division, told The Chronicle that he was unable to comment at this time. 

The list of potential impacts for wineries, which represented 2% of the bank’s total loan business, according to an internal report, is extensive. One of the most pressing issues is making payroll, said Jasmine Hirsch, winemaker and general manager at Hirsch Vineyards in Sonoma County, who has worked with Silicon Valley Bank for about 20 years. Hirsch said she’s not personally worried about payroll for her winery. But if some others don’t have enough cash to pay employees, it could be especially devastating to farmworkers, many of whom live paycheck-to-paycheck.  

Additionally, wineries may not be able to pay bills or process credit card payments through their websites and tasting rooms if the money in their accounts is frozen. Those in the process of a winery remodel or vineyard development project may have to pause their work. This could also put a stop to any vineyard or winery acquisitions in the works. 

Since 1994, Silicon Valley Bank has extended more than $4 billion in loans to wineries and vineyards, providing financing for endeavors like vineyard acquisition and development, real estate and equipment purchases, according to the bank’s website. McMillan carved out a niche by establishing the bank as one of the few institutions that could cater to the nuanced needs of the wine industry. Wineries tend to make substantial investments in land, equipment and other assets years before they can sell a bottle of wine — a complex system that McMillan made a business of understanding. 

“So much of our business’ assets are tied up in inventory,” Hirsch said. “And who understands wine inventory? How do you value it? How can you borrow against that if you don’t know how to value it?” 

Widely considered a wine industry thought leader, the bank is also revered for McMillan’s annual State of the Wine Industry report, which provides a yearly, data-driven outlook for wineries. The report has been so influential in large part because the bank has access to so many winery clients, whose answers to an annual survey provide much of the report’s data. It has drawn national attention during the last few years, as McMillan has become one of the wine industry’s most vocal advocates for the need to attract younger consumers.

Hirsch said she secured a term loan last year with the bank for a vineyard development project that hasn’t been funded yet. Currently, it has a “very nice, low-interest rate,” but she worries that a new lender could force a reset and she’d suddenly have to borrow at the current and significantly higher rates. 

While Kawala said that Maker will be OK in the fallout, she’s “fearful and nervous” about the financial well-being of the wine industry as a whole and believes this will impact wineries of all sizes. Wineries are known to largely operate with limited cash reserves due to factors like the unpredictability of the growing season and the fact that wineries often wait years to sell their products while they age. According to data from financial analyst S&P Global Market Intelligence, 97% of Silicon Valley Bank’s accounts hit above the $250,000 insurance limit. 

“Tech and venture are well-capitalized, but this could be a really serious reckoning for independent wineries,” Kawala said.

The wine industry will likely feel the impacts beyond cash flow and loans. Without the State of the Industry Report — viewed as a sort of industry bible — wineries may no longer have as comprehensive analysis to guide their decisions related to sales, marketing, farming and looming challenges. The bank offered its wine clients additional support through winemaker dinners, auctions, wine education and more. Hirsch said the bank had a concierge service that connected tech clients to wineries. 

Kawala said she had never expected her independent wine company to be so enmeshed in the ups and downs of the volatile tech world. 

“We’ve never experienced anything like it,” she said. “No one knows how it will play out.”

Update: An earlier version of this article misstated the estimated number of wineries that work with Silicon Valley Bank.

Reach Jess Lander and Esther Mobley: jess.lander@sfchronicle.com, emobley@sfchronicle.com