Following the collapse of Silicon Valley Bank (SVB) in March 2023, a group of tech billionaires led by Peter Thiel are planning to launch a new financial institution, named Erebor, to fill the gap left by SVB. This new bank aims to serve startups and cryptocurrency companies, a market segment that has struggled to secure financing since SVB's downfall.
SVB's collapse in 2023 triggered contagion across the U.S. banking sector and led to tighter lending standards. Before its collapse, SVB had deep ties to crypto companies and venture capital funds, banking nearly half of all venture-backed technology and life sciences companies in the United States. Its failure created a significant void in the market. The new bank, Erebor, aims to fill this void by providing traditional banking products, as well as virtual currency-related products and services, for businesses and individuals. Erebor hopes to become the top lender for riskier businesses, like startups and crypto firms, that other banks won’t take on.
Erebor intends to focus on key industries, including artificial intelligence (AI), defense, manufacturing, and digital assets, as well as non-U.S. companies looking to access the U.S. banking system. The bank's charter application states that it wants to be “the most regulated entity conducting and facilitating stablecoin transactions”. The group of founders first discussed the idea after SVB's failure.
Peter Thiel is well-known in the crypto space for his advocacy of Bitcoin and digital assets. Thiel's venture fund, Founders Fund, is among the early investors in Erebor. In addition to Thiel, the group includes Palmer Luckey, co-founder of defense contractor Anduril, and Joe Lonsdale, founder of 8VC. Erebor is named after a mountain in J.R.R. Tolkien's "The Lord of the Rings," a series from which Thiel has drawn inspiration for the names of at least five of his companies.
The collapse of SVB had a significant impact on the digital asset market, with crypto investment funds losing 10% of their assets under management in just one week. The bank's failure put significant pressure on lending within the venture capital ecosystem.
Thiel's interest in the crypto space extends beyond Erebor. His venture capital firm, Founders Fund, has invested $200 million in Bitcoin and Ethereum. This investment, made between late summer and early fall of 2023, signals renewed confidence in digital assets from the prominent Silicon Valley investor. This isn't Thiel's first foray into crypto, as Founders Fund made a similar pre-bull run move in 2017, purchasing $15-20 million worth of Bitcoin before its meteoric rise. Thiel also backs the crypto exchange Bullish, which recently submitted regulatory filings for an initial public offering in the United States.
Erebor is expected to have two CEOs: Jacob Hirshman, a former advisor to crypto firm Circle, and Owen Rapaport. Luckey and Lonsdale likely won't be involved in the day-to-day operations. The launch of Erebor represents a significant move by Thiel and his fellow billionaires to capitalize on the market opportunity created by the collapse of SVB and to further support the growth of the cryptocurrency and startup industries.
