Silicon Valley Bank’s collapse upsets tech disruptors

The collapse of Silicon Valley Bank hit the tech industry that was the bank’s backbone, leaving shell-shocked entrepreneurs grateful for the government bailing them out while mourning the loss of a place that served as an intimate innovation club.

“It was the gold standard, it seemed almost strange if you were in tech and didn’t have a Silicon Valley bank account,” Stefan Kalb, CEO of Seattle startup Shelf Engine, said during an interview Monday as he began the transfer process. million dollars in other banks.

The Biden administration’s move to guarantee all Silicon Valley Bank deposits above the insured limit of $250,000 per account led to a “palpable sigh of relief” in Israel, where its growing tech sector is “connected by an umbilical cord with Silicon Valley,” said Jon Medved. , founder of Israeli venture capital crowdfunding platform OurCrowd.

But gratitude for deposit guarantees that will allow thousands of tech startups to keep paying their workers and other bills is mixed with moments of reflection among entrepreneurs and venture capital partners shaken by the collapse of Silicon Valley Bank.

The crisis has “forced every company to re-evaluate their banking arrangements and the companies they work with,” said Rajeeb Dey, CEO of London-based startup Learnerbly, a platform for workplace learning.

Entrepreneurs who had deposited all their startup money in Silicon Valley Bank are now realizing that it makes more sense to spread their funds across multiple institutions, with larger banks considered safer havens. Kalb began Monday by opening an account at the largest in the US, JP Morgan Chase, which has about $2.4 trillion in deposits. That’s 13 times more than deposits at Silicon Valley Bank, the 16th largest in the US

Bank of America is taking some of the money that Electric Era had deposited with Silicon Valley Bank, and the Seattle startup’s CEO Quincy Lee expects to have no trouble finding other candidates to keep his company’s remaining money as part of diversification plan.

“Every bank is happy to take a startup’s money,” Lee said.

Still, there are fears that it will be harder to fund the inherently risky ideas behind the tech startups that have become a specialty of Silicon Valley Bank since it was founded in a poker game in 1983, as it unleashed the advent of the personal computer and faster microprocessors. more innovation.

Silicon Valley quickly established itself as the go-to spot for venture capitalists seeking financial partners more open to unconventional business propositions than its larger, more established peers that were not yet well versed in technology.

“They understood startups, they understood venture capital,” said Leah Ellis, CEO and co-founder of Sublime Systems, a Somerville, Massachusetts, company that is commercializing a low-carbon cement production process. “They are woven into the fabric of the startup community that I belong to, so banking with SVB was a no-brainer.”

Venture capitalists set up their Silicon Valley Bank accounts just as the tech industry was taking off, then advised entrepreneurs they were funding to do the same.

That cozy relationship ended when the bank disclosed a $1.8 billion loss on low-yielding bonds bought before interest rates began to rise last year, causing alarm among its financially savvy customer base that used the fruits of technology to spread warnings. which turned into a disastrous run of deposits.

Bob Ackerman, founder and CEO of venture funder AllegisCyber ​​Capital, likened last week’s deluge of withdrawal requests to Silicon Valley Bank to self-harm by “a circular firing squad” intent on “shooting your best friend.”

Many of Silicon Valley Bank’s roughly 8,500 employees are now also on strike, even though government regulators now overseeing their jobs have said they will be offered jobs worth 1.5 times their wages for 45 days, said Rob McMillan, who had worked there. for 32 years.

“We don’t know who’s going to pay us when,” McMillan said. “I think we all lost a paycheck. We don’t know if we have any benefits.”

Although all of Silicon Valley Bank’s depositors have been settled, its demise is expected to leave a void in the technology sector that may be difficult to fill. In an essay he posted on his LinkedIn page, noted entrepreneur Michael Moritz compared Silicon Valley Bank to a “loved local market where the people behind the counters know their customers’ names, have a ready smile, but still charge the current price when you sell a piece of meat’.

Silicon Valley Bank is weakening at a time when startups have already had a tougher time raising money, as slumping tech stock values ​​and steadily rising interest rates have led investors to cut back. The bank often helped fill financial gaps with one of its specialties – loans known as “venture debt” because they were intertwined with financing provided by its venture capital clients.

“There are going to be a lot of great ideas, a lot of great teams that don’t get funded because the barriers to entry are too high or because there aren’t enough people willing to invest,” said William Lin, co-founder of cybersecurity startup Symmetry. Systems and partner at venture capital firm ForgePoint.

With Silicon Valley Bank gone and venture capitalists taking the reins, Lin expects there will be fewer startups receiving money to pursue ideas in the same areas of technology. If that happens, he predicts a competitive win that will ultimately make the biggest tech companies even stronger than they already are.

“A real day of reckoning is coming in the startup world,” predicted Amit Yoran, CEO of cybersecurity firm Tenable.

That may be true, but entrepreneurs like Lee and Kalb already feel like they’ve gone through an emotional rollercoaster after spending the weekend worrying that all their hard work will come to naught if they can’t get their money out of Silicon Valley Bank.

“It was like I was stuck in a doomsday loop,” Lee said.

Even as he focuses on growing Shelf Engine’s business of helping grocers manage their food orders, he vowed not to forget “a very hard lesson.”

“Obviously now I know banks are not as safe as I thought they were,” he said.


Associated Press writers Ilan Ben Zion in Jerusalem. Ami Bentov in Tel Aviv. Kelvin Chan in London; Jennifer McDermott in Providence, Rhode Island. Frank Bajak in Boston and Cathy Bussewitz and Cora Lewis in New York contributed to this story.

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