Silicon Valley Bank – the bank of choice for San Francisco Bay Area start-ups and venture capitalists – went into receivership on 10 March 2023, leaving some investors predicting a scenario worse than the Covid-19 crisis or the 2008 financial crash for Silicon Valley’s start-up ecosystem.
Little Tech – start-ups that hold the promise of becoming the next generation of US Big Tech companies – are said to be the key to keeping the US globally competitive, particularly in the fight for global tech supremacy against China.
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Until its collapse, Silicon Valley Bank serviced around half of all the Bay Area’s venture-backed start-ups and the majority of venture capitalist companies, and was the largest bank in the region by deposits. Companies with between 10 and 100 employees will be most affected by Silicon Valley Bank’s collapse, potentially wiping out thousands of businesses in what some are calling an extinction-level event for Bay Area start-ups.
The immediate impact on the start-up ecosystem is that potentially thousands of start-ups will struggle to pay their bills, meet payroll commitments, or potentially default on credit lines. Many start-ups, already undergoing business restructuring for greater efficiency in the face of challenging economic headwinds, have little visibility on when they might access their funds or what losses might ensue.
On 8 March, Silicon Valley Bank’s CEO sent a note to shareholders about the lender’s liquidity problems, which sent its share price plunging. This in turn prompted a run on the bank. Trading halted on 10 March and the Federal Deposit Insurance Corporation shut down Silicon Valley Bank at around noon on Friday.
The apparent speed of the bank’s demise sent shockwaves through the Silicon Valley start-up community and had commentators drawing comparisons with the collapse of investment bank Lehman Brothers, which led to the 2008 financial crisis. In just 48 hours, a key part of Silicon Valley’s financial infrastructure disappeared, with billions of dollars of deposits suddenly frozen, leaving many businesses scrambling to access their deposits.
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By GlobalDataIn addition, the collapse of the US’s 16th-largest bank could also prompt a more local crisis by undermining confidence in US regional banks. Other consequences include the effect on tech ecosystems all over the world that rely on US venture funds, particularly in the UK.
The crisis in Silicon Valley comes as global venture capital, largely concentrated in the US, fell significantly in 2022, adding to an already challenging funding environment for start-ups.
