Erebor Bank raises $8B valuation as it targets SVB’s tech lending market

Erebor Bank is raising fresh capital at an $8 billion valuation as it targets the technology and defense customers once served by Silicon Valley Bank, Bloomberg reports. The valuation is nearly double the $4.35 billion it reached in a funding round late last year.

The Ohio-based lender received its banking approvals this year and has drawn customers from technology and defense firms in California. Erebor said it added hundreds of customers in the second quarter. Founder Palmer Luckey told Bloomberg in July that none of the new customers were his own companies.

Erebor was founded by Luckey and is backed by Peter Thiel’s Founders Fund, Andreessen Horowitz and other venture capital investors. Its stated mission is to fill the gap left by SVB, which specialized in lending to technology startups before its collapse in 2023.

Luckey told The Wall Street Journal in February that Erebor aims to understand its borrowers like a specialized lender. Bloomberg Opinion columnist Paul J. Davies wrote that this concentration creates risks because many technology borrowers are unprofitable or have limited revenue.

The bank plans to use blockchain technology to let customers move money around the clock, according to The Wall Street Journal. It also plans to lend against crypto assets and illiquid private securities, while focusing on defense hardware and chips used in artificial-intelligence systems.

Regulators have required Erebor to maintain a 12% capital ratio for its first three years. That compares with an 8% minimum for community banks with less than $10 billion in assets and a 10% requirement imposed on Augustus National Bank, another new Thiel-backed lender.

Erebor and Augustus are chartered banks whose deposits are covered by the Federal Deposit Insurance Corp. That distinguishes them from trust banks established by Circle and Ripple, which can hold customer assets but do not take deposits protected by FDIC insurance.

Davies noted that SVB more than tripled its assets in the two years through the end of 2021 before becoming the second-largest US bank failure. He wrote that Erebor’s ability to remain a small community lender would limit broader risks, but an attempt to scale rapidly could expose the wider financial system to losses.