Silicon Valley Bank has been the backbone of many startups and venture capital funds around the world. The impact of the biggest bank failure since the 2008 financial crisis could affect the entire tech industry worldwide in the coming years.
“In essence, SVB has been the godfather of the Silicon Valley banking ecosystem in the tech world for the last few decades, and the negative ripple effects of this historic collapse will have myriad implications for the tech world going forward. We think,” said Dan Ives. Wedbush Securities analysts said in a note on Tuesday.
SVB’s collapse began last week when it said it needed to raise $2.25 billion to shore up its balance sheet. Venture capital firms directed investee companies to withdraw funds from banks, while other clients tried to grab cash before it ran out. This effectively led to a bank run.
Banks had to sell their assets, mainly bonds, at huge losses.
US regulators closed the SVB on Friday and took control of its deposits. Regulators announced Sunday that SVB depositors will be able to access their money in a move aimed at stopping further contagion.
But according to investors and analysts who spoke to CNBC, the episode has seen technology crash in several ways, from making it harder for startups to raise money to forcing companies to change their business models. can affect the world of
“Last thing you need”
SVB is not only in the United States, but also in Europe and even in China.
The 40-year-old institution not only provided traditional banking services, but also had close ties to the tech world, funding businesses deemed too risky for traditional lenders. . SVB also provided other services such as credit lines and startup lines.
SVB thrived in good times. But over the past year, the US Federal Reserve (Fed) has raised interest rates, hurting the once-boosting tech sector. For startups in the United States, Europe, etc., the funding environment is becoming more and more difficult.
SVB’s demise comes at an already difficult time for startup investors.
Ben Herberg, managing partner of China-based venture capital fund MSA Capital, told CNBC, “This Silicon Valley bank is the last thing we need and it’s completely unexpected. bottom.
While tech giants laid off tens of thousands of workers to cut costs, startups had to tighten their belts.
In this environment, SVB has played a key role in providing credit lines and other means through which startups can pay their employees and get them through tough times.
“Silicon Valley Banks have been very sympathetic to the sector. Many of the companies are already struggling to raise stakes, and they hoped, these lines would extend their runway and push cash burn beyond the recession we’d expect. RSE Ventures CEO Matt Higgins said on CNBC’s “Street Signs Asia” on Tuesday.
“It evaporates overnight and there’s no other lender stepping in to fill those holes.”
EY global blockchain leader Paul Brody told CNBC Monday that a cryptocurrency company called POAP, run by a friend of his, has half of the company’s money tied up in SVB and cannot get it out. Told. The amount of SVB is “more than can be covered by labor costs,” suggesting that it may be difficult to pay employees. A company spokesperson was not immediately available for comment, and CNBC was unable to independently verify Brody’s comments.
‘reboot’
The SVB demise will also make startups more focused on profitability and more in control of their spending.
Taboola CEO Adam Singolda said on CNBC’s “Last Call” on Monday:
Hussein Kanji, co-founder of London-based Hoxton Ventures, said there will be more corporate restructurings over the next three years, although some have postponed.
“I see a lot of ‘go ahead with the can’ behavior, but this doesn’t help much. Do the hard things and don’t delay or procrastinate unless you have a very good reason. Things often don’t get easier. In the future, just because you want to,” Kanji told CNBC via email.
Wedbush’s Ives said bankruptcies could also increase, adding that weaker early-stage tech startups could be forced to sell or close down.
“The impact of this past week will have profound ripple effects across the tech industry and Silicon Valley for years to come,” Ives said in a note Sunday.
— CNBC’s Rohan Goswami and Ari Levy contributed to this report.