SVB collapse could hinder UK tech

SVB collapse could hinder UK tech

Silicon Valley Bank

The collapse of Silicon Valley Bank (SVB) will have significant implications for the UK tech sector, which includes many thriving start-ups and scale-ups according to Julian David, CEO of techUK.

The bank, an emblematic one for the tech industry, was shut down last week in what was the second-largest bank failure in US history.

Founded in Santa Clara in the 1980s, it began as a regional bank that served the local economy. The bank specialised in high-growth startups and served between a third and a half of the UK’s “innovation economy” according to a report from the Financial Times.

Following the collapse, however, SVB’s UK branch was shut down by the Bank of England. The central bank of the UK stated that SVB had a “limited presence” and no “critical functions” supporting the UK’s financial system.

“With SVB being a retail bank, its collapse left clients uncertain about their ability to pay salaries and rent,” David told Capacity

Fortunately, disruptions were avoided after the UK government and HSBC acquired the UK branch for a reported figure of £1.

Over the weekend, David says, techUK engaged in talks with the government to emphasise the impact of SVB’s collapse on the UK tech sector.

“Moving forward, it is essential to continue working towards an economy that can adapt to the tech sector’s growth and prevent similar events from threatening the industry in the future,” he added.

Hidden risk

Andrew Kitson, head of telecoms, media and technology at Fitch Solutions tells Capacity that SVB’s importance to the technology ecosystem has been proved to be a “hidden and somewhat underappreciated risk”.

Kitson says this is because the bank has provided support for a broad range of companies providing considerable direct and indirect contributions to diverse aspects of the tech sector.

“Of course, support has also been provided by a number of other financial institutions and private investors, so a number of those companies affected by the closure of SVB could turn to alternative sources of funding, assuming they are not forbidden from doing so by the terms of contracts with SVB or other parties,” he adds.

Yet the resiliency of startups should not be underestimated according to Kitson, as a lot of their value lies in the intangible and transferable knowledge and skillsets of the entrepreneurs that founded them, as well as their employees.

“Startups will continue to emerge, and other financiers will inevitably step forward to fill any void left by SVB, although it’s likely that these alternative financiers will be less inclined to take risks and conduct deeper due diligence before investing.”

Kitson, though, expects that it will be some time before the full impact of the SVB closure will become apparent as only a small proportion of financing deals struck over the years will have been reported openly.

“It remains to be seen whether enough clients stick with SVB or look elsewhere for support.”

Global telco response

On the global side, Ribbon Communications, the Texas-headquartered provider of IP optical networking solutions said it does not expect the closing of SVB to have a significant impact on its operations.

"Ribbon follows a diversified strategy when it comes to deposit and lending institutions, allowing it to minimise risk and ensure ongoing access to working capital," it said in a statement.

"The company continues to monitor the situation with respect to the closure of SVB."

Weave Communications had around US$2 million with SVB as of March 10, which, it says, was less than 2% of the company's cash and cash equivalents and short-term investments.

The company added it did not have any cash equivalents held at SVB.

"As previously disclosed, the Company also maintains a $50 million revolving line of credit with SVB and has borrowed $10 million against it," Weave added.

"The Company had no pending plans to utilise any additional funds from the revolving line of credit.

"At this time the Company is evaluating future accessibility to the revolving credit line due to SVB moving into receivership."

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