The collapse of Silicon Valley Bank (SVB) has the potential to significantly hurt startups and innovation. As the preeminent provider of venture debt in the industry, SVB works with more than half of all U.S.-based startups. Its collapse has left thousands of companies in Silicon Valley’s intricately connected tech sector, who banked at SVB, unable to access their deposits. SVB was different than other banks because it was willing to work with tech startups in ways other banks might have been more reluctant to, like lending them money even though they didn’t have free cash flow or much in the way of assets. The collapse of SVB will leave startups scrambling for other financing sources, tightening liquidity, taking time from management, and therefore moving focus away from growth and innovation. This not only goes for US startups, but the global ecosystem, including Europe, will feel the impact.
Silicon Valley Bank’s Influence in the Tech World
Silicon Valley Bank (SVB) was a prominent sponsor at tech conferences, and its executives were often featured speakers. But what made SVB different than other banks was its willingness to work with tech startups in ways other banks might have been more reluctant to, such as helping early employees secure personal loans for a house. SVB was also particularly flexible about lending tech startups money even though they didn’t have free cash flow or much in the way of assets, and were often willing to work with founders who weren’t US citizens. This flexibility came with a potential payoff for SVB, since in addition to charging interest, the company often received stock warrants that could pay off if the startup got acquired or went public.
SVB’s Impact on European Tech Companies
SVB has been active in the UK since 2004 and has since opened offices in Ireland, Germany, Denmark and Sweden. Its customers have included companies like Snyk, Graphcore and Wise, and some of the continent’s biggest VCs, such as Atomico, Index and Accel. In 2022, only 18% of deposits were from international clients, and international global fund banking only represented 3% of total client funds.
The news of SVB’s collapse sent shockwaves through the European tech industry. Many founders have begun withdrawing their capital from SVB as a precautionary measure, even though investors warned that this could make the situation worse. Some VC firms even asked their LPs to stop sending money to their accounts with SVB. On Friday 5pm GMT on Friday, SVB was shut down by California regulators, and a few hours later, the Bank of England declared it is starting insolvency proceedings for SVB UK.
The Future of Financial Services in Europe
The collapse of Silicon Valley Bank has left many tech companies in Europe scrambling for answers as to how they will finance their operations going forward. While some may be able to secure bridge loans from VC firms or other financial institutions, many startups may not have access to the same kind of financing they had with SVB. This could cause a ripple effect across the industry as fewer investments are made into early-stage companies.
This uncertainty has also put pressure on regulators to ensure that financial services companies are adequately regulated. The Bank of England has already announced it will review financial regulations in light of SVB’s collapse. It remains to be seen how this will affect future investments into European tech companies.