SStart-up founders, venture capitalists and aspirational entrepreneurs descended on Austin on Friday for the annual South by Southwest conference as they do every year. But as the day wore on, a sense of fear and confusion began to take hold amid the usual energy and bustle of the Texas capital.
Silicon Valley Bank (SVB), a financial institution that had become the go-to bank for nearly half of all venture-backed tech startups and many in the healthcare sector, was collapsing. Major venture capital firms and start-up incubators, including Y Combinator and Founders Fund, had advised their founders to reduce exposure to SVBs. The industry began to panic.
In the hours and days that followed, the situation amplified. Federal regulators took over SVB and shut it down in the afternoon, followed by a Biden administration intervention to protect depositors over the weekend. The financial repercussions spread around the world and on Tuesday, the justice department supposedly was doing research
Neal Mody, a Seattle-based venture capitalist and founder of Zoic Capital, said he faced a barrage of questions about the bank while speaking at a SXSW panel on Friday and spent the rest of the night on the phone trying to calm down fans. business partners in a panic..
“You saw a lot of confusion,” Mody said, adding that the topic ended up “dominating” much of the conference.
The biggest banking collapse since the 2008 crisis has shocked the entire world. But in Silicon Valley, it also had a more nuanced effect on the regional industries that flourished around the bank. SVB financed a wide range of clients in Silicon Valley. Its demise affects not only tech companies, but also others that flourished alongside the start-up scene, including nonprofits, small businesses, etsy sellers, buzz employees and California cellars.
“[Silicon Valley Bank] it was really the heart and lungs of the tech startup community in Silicon Valley, and around the world,” said Dan Ives, an analyst at Los Angeles-based investment firm Wedbush Securities. “The ripple effect will be felt for years to come.”
With SVB’s alleged commitment to progressive causes, more than 1,500 climate tech startups have been endangered by their plight and affordable housing schemes that rely on SVB funds have been put on hold.
Mercy Housing, one of the largest affordable housing nonprofits in the country, was in the midst of obtaining a loan from SVB for a housing development in the heart of San Francisco that would offer 112 homes, an effort that “now has been delayed while the group looks at alternative funding options, Kate Peterson, Mercy Housing’s senior vice president of communications, told The Guardian in a statement, adding that the organization was “confident” the project would go ahead.
Several local businesses and nonprofit organizations are likely to be affected, said Scott Wiener, a California state senator who represents San Francisco and parts of San Mateo County. “Losing Silicon Valley Bank is damaging because it is absolutely enmeshed in the Bay Area ecosystem around technology and some other industries,” he said. “It would be the same as if there was a farmer-focused bank in Nebraska that failed. That would be really damaging to that local community.”
Just as they do with tech startups, regional banks with industry expertise play an important role for nonprofits, Wiener added. In the 1990s, when I was on the board of the LGBT Community Center, a San Francisco nonprofit that serves the local lesbian, gay, bisexual, transgender, and queer community, “none of the big banks would talk to us about because we were just a small non-profit organization.” The regional banks, on the other hand, gave them a chance.
In the days after SVB began to collapse, Wiener said he also heard from small businesses in San Francisco, including a bike shop and several restaurants, that were unable to process their payroll because the payroll company they worked with had banking operations. with BLS.
“If tech companies start not paying payroll and tech startups start to evaporate, that’s bad for the economy, that’s bad for a lot of normal people trying to live their lives,” he said. I think because of the name [SVB] there was a perception that it would only affect technology, and that is not the case.”
The collapse of SVB will accelerate the ongoing crises facing the tech industry in recent years, including funding problems, waves of layoffs and regulatory pressure from Washington. It can add fuel to the argument that Silicon Valley needs stricter guardrails, one that has intensified with the collapse of high-profile firms like WeWork and Theranos and the public questioning of tech executives in Congress.
The question now is how Silicon Valley will adapt to these new realities. Amid a broader economic downturn and rising interest rates, the industry is much less cash flowing than before, and without SVB, the funding space will be even tighter.
“SVB was really the fundamental foundation of the technology boom that we’ve seen in the last decade,” said Ives. “This is going to tighten the spigot of cash going into new businesses in the Valley. With SVB, who was really the Godfather in space, down, they face a very tough road.”
