smallsilicon valley It’s a tough place to be a banker. Startup bosses call you referrals, but get no income. Loans can rarely be backed by tangible assets. Many clients fail. Silicon Valley Bank (SVB) has attracted nearly half of U.S. venture-backed technology and life sciences companies as clients by offering what venture capitalists refer to as the “white glove red carpet treatment.” It’s not just the lunches and events it hosts for clients: SVB established itself as a reliable cog in the Silicon Valley dream machine.inside Financial TimesMichael Moritz of Sequoia Capital, a big venture capital firm, lamented the loss as akin to a “death in the family”.
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Thank you regulators, SVBThe demise of Silicon Valley does not mean a cash crunch for Silicon Valley. Technicians just need to worry about their jobs as before. For some, relief at having dodged a bullet turned into anger at the company that was quickest to withdraw their deposits, causing their beloved bank to fail. The next stage in grief should be sober risk management.Chances of replacement, according to venture capitalists SVB Being a banker is a “huge opportunity” for Silicon Valley. There is no shortage of institutions concerned about the $300 billion dry powder of venture capital waiting to be invested in start-ups.but SVBThe debacle of Silicon Valley will dent Silicon Valley’s ambitions in other ways.
Exactly where the dust and sediment were deposited remains uncertain.Reports suggest regulators are trying another auction SVB, has been unable to find a buyer last weekend. Banks and private equity funds are circling. Still, startups are finding new homes for their cash. During last week’s chaos, companies with accounts elsewhere moved funds. Others get tripped up by red tape as they frantically start new businesses. Some even wire money into personal accounts. Fintech companies also had a busy weekend. Brex was one such firm, opening 3,000 new accounts.However, the relationship between fintechs and regional banks suffered after the financial crisis SVBA debacle that could scare away potential long-term customers.
The big banks are likely to become the main custodians of Silicon Valley’s cash in the future. Bank of America, Citigroup and JPMorgan Chase can barely open accounts quickly. Once there, startups can expect safer but less caring service. Call it the gray carpet treatment. March 13 SVBof the UK business was acquired for £1 ($1.21) HSBC, a multinational giant. New business will account for less than 1 percent of the company’s loans, deposits and profits. Whether the biggest institutions will reevaluate the way they bank the smallest tech companies remains to be seen, but those companies will never be their core focus.
Another question is what will happen to the risky debt market. SVB was a major player, with $6.7 billion of such loans outstanding at the time of its collapse. Startups use this low-cost loan to bolster their balance sheets between equity funding rounds. Most now expect such loans to become more expensive, especially for the youngest companies. VCs are unlikely to collectively downgrade themselves because of the relatively small returns offered by such loans. Other wheels in the venture capital machine also need to be fueled. For example, SVB Bridge financing is typically provided to venture capital firms, allowing them to close deals while they wait for investor cash.
Loss SVB That could have a chilling effect on industries already suffering from higher interest rates. Financing constraints and difficulties in banking small businesses will make venture capital’s adjustment to this new world more difficult than it would otherwise be. Bankers may have to wait for the dry powder of venture capital to hit their deposit accounts — after all, the amount of money flowing into global start-ups fell by two-thirds in the last quarter. But sooner or later the expectations of investors and startups will reset and companies will face the dreaded “strike round” at lower valuations. A trip to the bank might remind dealmakers of their own mortality. After years of prosperity, that’s not necessarily a bad thing. ■
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