With financial institutions and government agencies acquiring Silicon Valley Bank, tech companies worldwide were relieved of a major economic catastrophe. But with SVB’s collapse, European tech hubs lose an important financial support system. Underserving start-ups might struggle to flourish in the European innovation market without a formidable investor.
Even after receiving significant support from government agencies and financial institutions, the future of European tech companies remains questionable.
With HSBC acquiring Silicon Valley Bank’s London subsidiary and BaFin (The Federal Financial Supervisory Authority) granting authorization to SVB Germany for conducting business operations, the European start-up ecosystem has been relieved, but temporarily.
With billions of dollars stuck in SVB’s US account, start-ups worldwide have been desperately waiting to receive back their deposits. HSBC’s acquisition brings good news for the majority of European start-ups which used to run their monetary operation from SVB’s London branch. Meanwhile, Silicon Valley Bridge Bank N.A., which received all the equity, assets, and liabilities from its parent company, will be able to conduct business operations in Germany via SVB’s German branch.
But with one of the key investors missing from the picture, the upcoming journey of the European tech ecosystem will be anything but easy, especially for the underserved start-up sectors.
SVB’s exit leaves a big gap
SVB’s collapse is set to create a large financial gap in the European start-up ecosystem which is tough to fill. Apart from investing millions of dollars in series rounds, the bank’s debt financing strategy made it an instant favorite among start-up founders and executives. In the last five years, almost 75% of the European companies which received funding from SVB, have benefited from its venture debt financing.
“It will certainly impact the EU IT sector when one of the major investment players is no longer in the game,” said Frederik Schouboe, co-CEO and cofounder of Keepit. “Silicon Valley Bank was prepared to take risks that other banks wouldn’t, and it is not possible to bank with mainstream banks if you are making a deficit in the subscription business – the regulatory environment is too strict for them to take part.” SVB was one of Keepit’s key investors with a $22.5 million venture debt investment, one-third of the company’s total funding amount.
It is not just early-stage start-ups like Zyte and Greenely that benefited from the debt financing strategy but also established organizations like Celonis and Verona Pharma, whose growth can be linked to the venture debt investment from SVB.
Apart from the financial support, the understanding of the start-up and tech sector led to SVB’s growing popularity. Silicon Valley Bank catered to the needs of tech start-ups, not only providing them with cash but also strategies and opportunities for accelerated growth. After the closure of SVB, Bo Ren, Director of Early Stage Startups at Silicon Valley Bank, said in a LinkedIn post, “It was so fulfilling to help a founder with their pitch, business model, GTM strategy, or make successful investor intros leading to capital raises.” Though new investment banks might be able to replace SVB financially, it will be tough for them to provide upcoming innovation start-ups with an environment to grow and accelerate. Bo Ren added, “We launched our Psychology of Money workshop to equip first-time founders with the resources and financial acumen to build world-class companies while managing their financial wellness.”
While most European companies relied partly on SVB’s funds, a few start-ups had their major investment backed by the American bank. According to Crunchbase data, the entire funding raised by Irish company Zyte was from SVB, while Modifi, a Dutch fintech company, received 80% of their investment from the American bank. Without their core investor, growing start-ups such as Zyte and Modifi are set to suffer.
Future worries clouded by temporary respite
Almost a decade and a half after the 2008 financial crisis, SVB’s collapse is one of the major US and global bank failures in recent times.
While most of SVB’s investment was in the US Silicon Valley, the European tech hub received considerable financial support from the US bank, especially in the last few years. After investing heavily in the US, SVB, with its branches in Germany, Denmark, the UK, and Sweden, has backed up a number of European start-ups like Affimed, Greenely, Keepit, and Zyte (formerly Scrapinghub), to name a few. With investment in varying technology sectors such as software, biotechnology, SaaS, and information technology, the bank’s presence was widespread all across Europe. With a rise in inflation and job cuts, the last thing the European tech sector wanted to see was the failure of a financial institution valued at $20 billion.
Of course, the good thing is that despite the uncertain future, the companies are momentarily relieved of the limited financial damage caused.
Future of European Start-ups
With the effects of the SVB collapse felt worldwide by the start-up community, it is still tough to determine what lies ahead for the European tech ecosystem. Isabell Horvath, VP of global communications at Celonis, an American-German data processing company, explained it is important not to speculate given the situation’s complexity.
Meanwhile, the European local investment institutions have provided a cushion for the companies to strive for innovation. Rinke Zonneveld, CEO of Invest-NL, talked about working together with fellow NPIs and European Investment Fund (EIF) to minimize the dependence of innovative European companies on American capital.
With the Silicon Valley Bank out of the start-up ecosystem, it will be interesting to see if another similar start-up-friendly financial institution can aid the growth of European and global tech companies.
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