Startup founders in The California Bay Area they are in a panic about accessing money and paying employees. Fears of contagion have reached Canada, India and China. In the UK, the SVB unit is in the process of being declared insolvent, has already gone out of business and is no longer acquiring new customers. On Saturday, the leaders of some 180 tech companies sent a letter calling on British Chancellor Jeremy Hunt to speak.
“The loss of deposits has the potential to cripple the sector and set the ecosystem back 20 years,” they said in the letter seen by Bloomberg. “Many companies will be sent into involuntary liquidation overnight.”
This is just the beginning. SVB also had branches in China, Denmark, Germany, India, Israel and Sweden. The founders warn that the bank’s failure could wipe out startups worldwide without government intervention. SVB’s joint venture in China, SPD Silicon Valley Bank Co., was trying to calm local customers overnight by reminding them that operations have been independent and stable.
United States: startups cannot get money from Silicon Valley Bank due to financial problems
“This crisis will start on Monday and so we ask you to prevent it now,” the founders and CEOs of the British startup said in the letter to Hunt. Companies listed in the letter include Uncapped, Apian, Pockit and Pivotal Earth.
Hunt spoke to the Governor of the Bank of England and the Bank of England’s Economic Secretary about the situation on Saturday morning treasure it was holding a panel discussion with interested companies later in the day, the Treasury said.
Underlining the challenge governments face in gaining control of the full extent of the spillover: the UK Treasury has begun surveying startups, asking how much they have on deposit, their approximate cash consumption and their access to banking facilities at SVB and beyond, two people said they were aware of the matter, asking not to be identified because the information is not public. The Treasury declined to comment on the poll.
The founders eagerly awaited the outcome of the roundtable and all information on how their deposits with the bank would be managed. Toby Mather, CEO of British education software startup Lingumi, holds 85% of his company’s cash in SVB. He tried to transfer some of his accounts to him, but until Saturday night he wasn’t sure it would work. “This is life or death for us,” he said. “These things seemed so mundane before.”
Jack O’Meara, founder of London-based genomics startup Ocher Bio, spent the weekend unsuccessfully trying to move deposits from SVB. “If there’s no action,” he said, “it could really wipe out a generation of entrepreneurial companies.”
As in the US, some SVB deposits in the UK are insured, but it was unclear when such funds would be available. A deeper concern among startup leaders is that the collapse of SVB would limit future venture capital funding in the UK, where businesses are already hamstrung by Brexit.
Asian tech leaders are also rushing to assess the potential ramifications. In Singapore, financiers and entrepreneurs from a Wharton alumni gathered at Shangri-La shared news of the fallout, while startup founders and investors at a conference in Mumbai covered nothing else.
“The impact of the SVB incident on the tech industry should not be underestimated,” analysts led by Liu Zhengning of China International Capital Corp. said in a statement. Deposits are critical for tech startups because they generally require a lot of money to pay high expenses, including research and development costs and staff salaries, they said.
“If these cash deposits were eventually to be written down in the process of bankruptcy or restructuring, some technology companies could face high cash flow strain,” they said. “Bankruptcy risks shouldn’t be ruled out.”
Back in Silicon Valley, US Congressman Ro Khanna of Santa Clara held a town hall on Friday attended by more than 600 people including startup founders, technology leaders and SVB employees. He went on for more than 2.5 hours focusing primarily on small businesses trying to get payrolls across the nation on Monday.
SVB customers in California, many of them startup founders, stood outside the bank branch on Silicon Valley’s famed Sand Hill Road on Friday in the rain and cold, banging on the closed glass doors and trying to persuade representatives of the Federal Deposit Insurance Corporation to answer their questions.
A founder of a drone startup said a withdrawal she made on Thursday had failed and she was concerned about the payroll of her 12 full-time employees. She had tried calling the FDIC several times, “but the number isn’t answering,” she said.
Another customer remarked that he should have brought a bottle of whiskey to hand out while they waited. In an effort to get more information from an FDIC representative, he said, “Put yourself in our shoes.” The rep apologized before closing the glass door again.
Some in the VC and startup world are trying to find temporary solutions. Uncapped, a UK financial tech startup that lends to other startups, said it was launching an emergency finance program to help companies meet payroll and other obligations, as well as long-term bridging loans to help with the working capital.
Alexander Fitzgerald, founder of broadband startup Cuckoo and a former Treasury official, noted that UK startup finances are already strained due to a slowdown in the venture capital funding market. “British startups need the Treasury to act quickly,” he said.
In Canada, SVB Financial Group’s unit in the country posted C$435 ($314 million) in secured loans last year, double the C$212 million a year earlier, regulatory filings show. Its clients include e-commerce software provider Shopify Inc. and pharmaceutical company HLS Therapeutics Inc., according to a previous statement from the bank.
Toronto-based ad-tech company AcuityAds Holdings Inc. revealed on Saturday that it has $55 million in deposits with SVB, or more than 90% of its cash. The company had halted trading in its shares on Friday after a 14% plunge, citing the “evolving situation” with Silicon Valley Bank.
