Analysts and investors say the collapse of Silicon Valley Bank could have an impact on the tech sector for years to come.
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Silicon Valley Bank is the backbone of many startups and venture capital funds around the world. Its collapse is the biggest banking collapse since the 2008 financial crisis, and its fallout is likely to ripple through the entire technology sector around the world for years to come.
“Silicon Valley Bank has been essentially the godfather of the tech Silicon Valley banking ecosystem for the past few decades, and we believe the negative knock-on effects of this historic collapse will have myriad implications for the future of tech,” Dan Ives, analyst at Wedbush Securities said in a report on Tuesday.
SVB’s debacle began last week when it said it needed to raise funds $2.25 billion to support its balance sheet.The venture capital company Tell their portfolio companies to withdraw money from the bank Other customers want cash before they become unavailable. This effectively caused a bank run.
bank had to sell assetsmainly bonds, suffered heavy losses.
US regulator SVB closed on Friday and controlled its deposits.The regulator said on Sunday that SVB’s depositors will get their moneya move aimed at preventing further contagion.
But the incident has the potential to impact the tech world in a number of ways, from making it harder for startups to raise money to forcing companies to change their business models, according to investors and analysts who spoke to CNBC.
“The Last Thing We Need”
SVB is critical to the development of the technology industry, not only in the US but also in Europe and even china.
The 40-year-old institution has strong ties to the tech world that provides traditional banking services and funds companies deemed too risky for traditional lenders. SVB also offers other services to start-ups, such as lines of credit and lines of credit.
When the time comes, SVB thrives. But over the past year, the Federal Reserve has raised interest rates, hurting the once-booming tech sector. The funding environment has gotten tougher for startups in the U.S., Europe and elsewhere.
SVB’s demise comes at an already tough time for startup investors.
“The whole Silicon Valley Bank thing was the last thing we needed and it was completely unexpected,” Ben Haberg, managing partner at Beijing, China-based venture capital fund MSA Capital, told CNBC.
Startups have had to tighten their belts, while tech giants have laid off tens of thousands of workers to cut costs.
In such an environment, SVB has played a key role in providing credit lines or other tools that enable startups to pay their employees or tide them over.
“Silicon Valley Bank is very paternalistic about the industry, not only do they offer payroll services, illiquid credit loans to founders, but they also offer lines of credit. Many of these companies are already having trouble raising capital and they’re counting on those lines It’s about extending the runway and delaying the cash burn until after the recession that we all expect,” Matt Higgins, CEO of RSE Ventures, said on CNBC’s “Street Signs Asia” Tuesday.
“It evaporated overnight and no other lender is going to step in to fill these issues.”
Paul Brody, global blockchain leader at EY, told CNBC on Monday that a crypto firm called POAP, run by a friend of his, had half of the company’s funds tied up in SVB and could not be withdrawn. The SVB amount “exceeds what the payroll can cover”, suggesting it may be difficult to pay staff. A spokesman for the company could not immediately be reached for comment, and CNBC could not independently verify Brody’s comments.
‘restart’
The collapse of SVB could also focus on startups to shift to profitability and become more disciplined in spending.
“Companies are going to have to rethink the way they think about business,” Taboola CEO Adam Singolda said Monday on CNBC’s “Last Call.”
Hussein Kanji, co-founder of London-based Hoxton Ventures, said that over the next three years, companies will undergo more restructuring, although some companies will delay restructuring.
“I see a lot of ‘kicking the can down the road’ behavior and it doesn’t help. Do difficult things and don’t procrastinate or procrastinate unless there is a good reason. Things usually don’t get easier in the future just because of you Hope they do,” Kanji told CNBC via email.
Wedbush’s Ives said there could be more closures, adding that weaker, early-stage tech startups could be forced to sell or close.
“In our view, the impact of the past week will have major knock-on effects across the tech world and Silicon Valley for years to come,” Ives said in a note on Sunday.
—CNBC’s Rohan Goswami and Ari Levy contributed to this report.