Silicon Valley Bank’s collapse could have ramifications for the technology landscape over the approaching years, analysts and investors said.
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Silicon Valley Bank was the backbone of many startups and enterprise capital funds all over the world. The consequences of its collapse, the largest banking failure for the reason that 2008 financial crisis, is prone to be felt across the technology landscape globally over the approaching years.
“With SVB in essence the Godfather of the Silicon Valley banking ecosystem for the past few a long time within the tech world, we consider the negative ripple impact of this historical collapse can have a myriad of implications for the tech world going forward,” Dan Ives, analyst at Wedbush Securities, said in a note on Tuesday.
SVB’s collapse began last week when it said it needed to lift $2.25 billion to shore up its balance sheet. Enterprise capital firms told their portfolio firms to withdraw money from the bank and other clients looked to get their money before it became unobtainable. This effectively led to a bank run.
The bank needed to sell assets, mainly bonds, at a large loss.
U.S. regulators shut down SVB on Friday and took control of its deposits. Regulators then said Sunday that depositors at SVB would have access to their money, in a move aimed toward stopping further contagion.
However the episode has the potential to affect the technology world in several ways, from making it harder for startups to lift funds to forcing firms to alter their business model, in line with investors and analysts who spoke to CNBC.
‘Final thing we would have liked’
SVB was critical to the expansion of the technology industry, not only within the U.S. but in places like Europe and even China.
The 40-year old institution had an intimate link to the technology world offering traditional banking services in addition to funding firms that were deemed too dangerous for traditional lenders. SVB also provided other services like credit lines and contours to startups.
When times were good, SVB thrived. But over the past yr, the U.S. Federal Reserve has hiked rates of interest, hurting the once high-flying technology sector. The funding environment has got harder for startups within the U.S., Europe and elsewhere.
SVB’s collapse has come at an already difficult time for startup investors.
“This whole Silicon Valley Bank thing is the last item we would have liked and was completely unexpected,” Ben Harburg, managing partner of Beijing, China-based enterprise capital fund MSA Capital, told CNBC.
Startups have needed to tighten their belt while technology giants have axed tens of hundreds of staff in a bid to chop costs.
In such an environment, SVB played a key role in providing credit lines or other instruments that allowed startups to pay their employees or ride out hard times.
“Silicon Valley Bank was very paternalistic to this sector, they not only provided payroll services, loans to founders against their illiquid credit, but lines of credit as well. And a number of these firms were having trouble already raising equity and so they were counting on those lines to increase their runway, to push out the money burn beyond the recession all of us expect.” Matt Higgins, CEO of RSE Ventures, told CNBC’s “Street Signs Asia” on Tuesday.
“That evaporated overnight and there is not one other lender that is going to be stepping in to fill those shoes.”
Paul Brody, global blockchain leader at EY, told CNBC Monday that a crypto firm called POAP, which is run by his friend, has half of the corporate’s money tied up in SVB and might’t get it out. The quantity at SVB is “greater than payroll can cover,” suggesting it is perhaps hard to pay employees. A spokesperson for the corporate wasn’t immediately available for comment, and CNBC was unable to independently confirm Brody’s comments.
‘Reboot’
The SVB collapse will even likely put the give attention to startups to pivot to profitability and be more disciplined with their spending.
“Corporations can have to reboot the way in which they consider their business,” Adam Singolda, CEO of Taboola, told CNBC’s “Last Call” on Monday.
Hussein Kanji, co-founder of London-based Hoxton Ventures, said that over the following three years there will likely be more restructurings at firms, though some are holding off.
“I’m seeing a number of ‘kick the can down the road’ behavior which is not that helpful. Do the hard things and do not delay or procrastinate unless there is excellent reason to. Things don’t often get easier in the longer term just because you want for them to,” Kanji told CNBC via email.
Wedbush’s Ives said that there is also more collapses, adding that early stage tech startups with weaker hands might be forced to sell or shut down.
“The impact from this past week can have major ripple impacts across the tech landscape and Silicon Valley for years to are available our opinion,” Ives said in a note Sunday.
—CNBC’s Rohan Goswami and Ari Levy contributed to this report.
