- The collapse of Silicon Valley Bank is likely to be felt throughout the technology world for years to come.
- Investors who spoke to CNBC said there are issues for startups trying to access their funds and lines of credit to pay workers.
- Startups may also need to tighten their belts while others may collapse with less access to funding, experts say.
The collapse of Silicon Valley Bank could have ramifications for the technology landscape for years to come, analysts and investors say.
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Silicon Valley Bank is the backbone of many startups and venture capital funds around the world. The effects of its collapse, the biggest banking failure since the 2008 financial crisis, are likely to be felt across the tech world for years to come.
“With SVB essentially the Godfather of the Silicon Valley banking ecosystem for the past few decades in the tech world, we believe the negative ripple effect of this historic collapse will have far-reaching 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 raise $2.25 billion to shore up its balance sheet. Venture capital firms are telling their portfolio companies to withdraw money from the bank and other clients are looking to get their money out before it’s gone. This effectively led to a bank run.
The bank had to sell assets, mainly bonds, at a huge loss.
US regulators shut down SVB on Friday and took control of its deposits. Regulators said Sunday that SVB depositors will have access to their money, in a move aimed at stopping further accumulation.
But the episode has the potential to affect the tech world in several ways, from making it more difficult for startups to get funding to forcing companies to change their business model, according to the investor and analyst speaking to CNBC.
SVB is critical to the growth of the technology industry, not just in the US but in places like Europe and even China.
The 40-year-old institution has close links to the world of technology that offers traditional banking services as well as financing companies that are considered too risky for traditional lenders. SVB also provides other services such as lines of credit and lines of startups.
When times are good, SVB thrives. But last year, the US Federal Reserve raised interest rates, hurting the once high-flying technology sector. The funding environment is getting tougher for startups in the US, Europe and elsewhere.
The collapse of SVB came at a difficult time for startup investors.
“This whole Silicon Valley Bank thing was the last thing we needed and was completely unexpected,” Ben Harburg, managing partner of Beijing, China-based venture capital fund MSA Capital, told CNBC.
Startups need to tighten their belts as tech giants lay off thousands of workers in a bid to cut costs.
In such an environment, SVB plays an important role in providing lines of credit or other instruments that allow startups to pay their employees or ride out difficult times.
“Silicon Valley Bank is very paternalistic in this sector, they not only provide payroll services, loans to founders against their bad credit, but also lines of credit. those lines to expand their runway, to push cash burn beyond the recession we expect.” Matt Higgins, CEO of RSE Ventures, spoke on CNBC’s “Street Signs Asia” on Tuesday.
“That evaporates overnight and no other lender comes in to fill those shoes.”
Paul Brody, global blockchain leader at EY, told CNBC Monday that a crypto firm called POAP, run by his friend, has half of the company’s money tied up in SVB and cannot get it. The amount of the SVB is “more than the payroll can cover,” suggesting it may be difficult to pay employees. A spokesperson for the company was not immediately available for comment, and CNBC could not independently verify Brody’s comments.
The collapse of SVB may also put the focus on startups to pivot on profitability and be more disciplined in their spending.
“Companies need to reboot the way they think about 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 in the next three years there will be many changes in companies, although some are holding back.
“I’ve seen a lot of ‘kick the can down the road’ attitude that doesn’t help much. Do the hard things and don’t delay or procrastinate unless there’s a very good reason. In the future just because you want them to,” said Kanji on CNBC via email.
Wedbush’s Ives said there could also be more collapses, adding that early-stage tech startups with weak hands could be forced to sell or shut down.
“The impact from this past week will have major ripple effects throughout the tech landscape and Silicon Valley for years to come in our opinion,” Ives said in a letter Sunday.
—CNBC’s Rohan Goswami and Ari Levy contributed to this report.
