The closing of the Californian bank SVB last Friday has caused chain consequences that worry the world of finance.
The biggest US bank failure since the 2008 crisis, the establishment specializing in financing technology companies has failed to raise enough capital to meet the demands of its clients who wanted their money back. A sister company, Signature Bank, was also shut down two days later by US authorities.
If it doesn’t seem like a global financial crisis is coming, it’s a shock wave for the tech companies that rallied this weekend, worried about their funding and some about their survival.
• Why was SVB an important bank for the technology sector?
With some $173 billion in deposits, Silicon Valley Bank was the 16th largest US bank and a go-to institution for 40 years for technology startups and venture capitalists.
The bank boasted that its clients were “almost half” life sciences and technology companies financed by US investors. However, the vast majority of the funds they had deposited with SVB were not covered by collateral, so they were unable to withdraw more than $250,000 after SVB’s liquidation.
A modest sum in view of the SVB annual report which states that the portion of uninsured deposits amounted to approximately 96% of the total.
Fortunately, the US authorities assured on Sunday that all clients of the bank that failed could withdraw all the deposits they had placed in this bank, which is supervised by the public agency Federal Deposit Insurance Corporation and is now looking for redemption. This is enough to reassure certain companies like streaming company Roku, which had deposited $487 million, or 25% of its cash, there.
• How have venture capital and technology firms mobilized?
In the United States and the United Kingdom in particular, companies mobilized this weekend and asked for help.
First in the United States, a petition signed by more than 5,000 industry bosses and founders representing more than 400,000 jobs called on US Treasury Secretary Janet Yellen to come to the aid of small tech companies. that they were in danger of not being able to continue paying their employees if they could not withdraw the money deposited at SVB.
Among other actions, venture capital firms have expressed their support and several have also declared themselves ready to provide financial assistance to young companies in need.
In the United Kingdom, where SVB has a branch, the government said on Sunday that the bank’s failure posed “a serious risk” to the national technology sector, which did a lot of business with the California-based bank.
More than 300 UK start-up founders reportedly wrote to the government over the weekend asking for help. The UK Treasury, the Bank of England and HSBC responded on Monday morning by announcing HSBC’s takeover of SVB UK for a book and ensuring customers will be able to access their deposits.
Also in India, SVB was the bank of choice for young tech entrepreneurs doing business with the United States. According to various media, the Indian Minister of Technology plans to meet with start-ups on this issue this week.
Will it be more difficult for tech companies to finance themselves in the future?
“Before Covid, all projects were funded regardless of their strength, but lately there has been a slowdown in funding, he notes. “This is not a new thing.”
Venture capital companies will continue to reduce their wing, that is, they will be more demanding with the selectivity of their project, there will be more ‘due diligence’, he explains, but that will not prevent financing.
He adds that if monetary policy is relaxed and inflation falls, which seems to be on the way, it will be easier for the sector, which will once again be able to finance itself more easily.
• Will international start-ups turn down US funding?
The confidence of tech entrepreneurs in US funding could take a hit. Especially in China, where SVB has been present since the early 2000s.
For Alexandre Baradez, it is possible that Chinese companies seek more financing elsewhere than in the United States, especially since there are political tensions between the two countries. “It’s an added brake,” he says. He does not believe, however, that it could have similar repercussions in India or elsewhere.
Source: BFM TV
