SVB UK: the latest on the startup bank’s collapse

Startups have been hit by waves of crises in recent years. First, the pandemic. Then supply chain disruptions, rising costs and economic stagnation.

Now many are struggling with their main bank going under.

What happened to SVB and SVB UK?

Silicon Valley Bank — the bank for nearly half of VC-backed startups in the US — was shut down by US regulators on Friday after failing to raise more funds and a huge outflow of deposits when the founders hastened to withdraw capital. The Bank of England (BoE) then went over to the put Insolvency of SVB’s UK subsidiary.

This means that SVB customers can no longer make payments or receive deposits. The BoE’s bank insolvency proceedings will aim to pay out eligible depositors up to £85,000 (the amount of money protected by the Financial Services Compensation Scheme in every UK bank account) as quickly as possible.

Why is the collapse of SVB UK so important?

Many startups and VCs used SVB as one or the only of their regular bank accounts in the US and UK. Many startups also have debt financing from the bank. When startups can’t access their money, they can’t pay employees or suppliers.

Shmuel Chafets, general partner of Berlin-based VC fund Target Global, said the situation is particularly urgent as most early-stage tech companies are not yet profitable and often rely on banked investment capital.

“They are not profitable companies, so their cash reserves are not replenished every month. So the insoles could be a big problem,” he told Sifted.

SVB UK has 3,300 clients, including startups and investors, according to FT. That may not seem like a big number – as many have pointed out on Twitter – but probably many of the UK’s biggest and most successful tech companies and VCs. According to Dealroom, there are only 6,369 active UK startups with at least $500,000 in funding.

In the early stages, companies in the UK appear to be less dependent on SCC. Only 1.3% of deals on SeedLegals, a platform that helps startups with their fundraising legal issues, used SVB accounts. Most of SeedLegals deals are fishing, pre-seed or seed round.

According to Target Global’s Chafets, there is a major long-term concern for the companies that have received debt financing from the SVB, which is typically paid out to companies every month. According to Dealroom data, SVB Europe’s most active venture debt provider.

“The companies that need to reassess are companies that have a line of credit from the SVB that just doesn’t exist anymore. It’s a small problem,” he says.

And given the difficulty of raising equity in today’s market, Chafets believes SVB could leave a huge hole in the funding landscape for tech companies.

👉 We’re hosting a special edition of Sifted Talks on Tuesday to discuss what on earth went wrong at SVB and what’s next. Register your interest here.

What is the UK government doing?

The Treasury, the Bank of England and the Department for Science, Innovation and Technology were included Discussions with representatives of the tech industry all weekend to decide what kind of – if any – interventions can be made to support startups.

Chancellor Jeremy Hunt is expected to make a statement late Sunday – or Monday at the latest.

Industry insiders say the government’s biggest concern is finding a buyer for the bank or providing guarantees to other banks to lend to startups with money in the SVB. according to British media.

“The Government is working flat out on a solution to avoid or minimize damage to some of our most promising businesses in the UK and we will put forward immediate plans to ensure the near-term operational and cash flow needs of Silicon Valley Bank’s clients are met UK are able to be met,” said a Financial report released on Sunday.

Who Could Buy Silicon Valley Bank?

The Bank of London, the two-year-old clearing bank, has confirmed this submitted a formal proposal to buy the UK subsidiary of SVB.

Sky News has also reported that OakNorth, HSBC Holdings, JP Morgan, Barclays and Lloyds are considering buying SVB UK, while the FT has reported that a Middle Eastern buyer has expressed interest to the government.

The Evening Standard, meanwhile, has reported that the government is trying to nominate Barclays as a buyer.

How are startups reacting?

Startups with funds tied up in SVB UK accounts used the weekend to try and find new bank accounts – often not an easy or quick process – to set up other potential sources of funding while they awaited news of a solution.

Some have payroll to do next week and depending on the size of their organization the £85,000 they can receive from the FSCS as early as Monday may not go far enough.

Many companies are also not sure how much money is left in their SVB accounts since the portal has been closed.

Even those companies that managed to withdraw money from SVB accounts on Friday, or have ample working capital, may find themselves busy.

They need to ask customers to stop making payments to their SVB accounts – and have a way to redirect that money. Setting up new payments with them – especially if they are large organizations or in regulated industries – will take some time. Startups also need to think carefully about how to communicate these requests without losing trust.

How do VCs react?

Close to 100 venture capitalists, including some of Europe’s largest firms such as Accel and Atomico, signed a statement saying they would encourage portfolio companies to “restart” a banking relationship with SVB UK in the event of a sale and the bank being “adequately capitalised”.

Some founders criticized However, the VC response said that when concerns about the bank first surfaced, VCs encouraged portfolio companies to withdraw money from SVB UK.

Many VCs that Sifted spoke to said the setback could result in VCs committing even less money in the coming months as they help affected portfolio companies. VC dealmaking has already slowed since last year.