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"A Real Loss": Silicon Valley Bank Collapse Leaves Tech Start-Ups Worried

"A Real Loss": Silicon Valley Bank Collapse Leaves Tech Start-Ups Worried

For banks that are FDIC-insured, only $250,000 per account is guaranteed. (Representative)

New York:

The surprise collapse of a Silicon Valley bank has frozen billions of dollars pooled in by startups and their private equity backers, raising fears of a broader tech sector collapse.

The company, whose website says it is a “financial partner of the innovation economy,” was taken over by the US Federal Deposit Insurance Corporation (FDIC) on Friday to prevent further damage.

“SVB knew the entrepreneurial community,” Joseph DeSimone, a professor at Stanford University and founder of several startups, told AFP.

“He helped us recruit people, helped with mortgages for transplants, gave financial advice to new officers … so his disappearance is a real loss,” he said.

The company previously claimed that “nearly half” of the technology and life sciences companies that had US funding were among them, with many concerned about the potential ripple effects of its collapse.

For banks that are FDIC-insured, only $250,000 per account is guaranteed.

But according to SVB’s latest annual report, 96 percent of its $173 billion total deposits were uninsured.

The FDIC said Friday that all accounts will quickly get access to the insured portion of their deposits, but the rest will depend on how much is recovered from the sale of bank assets, an often lengthy process.

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Gary Tan, head of well-known incubator Y, tweeted: “The real victims of the SVB decline are depositors: startups with 10 to 100 employees, who can’t do payroll, and have to lay off or lay off workers as soon as Monday. ” conjunction.

He warned that “years of American innovation” are on the line, as “an entire generation of American startups” could be destroyed in a month or two.

‘do not like it’

Activist investor Bill Ackman sounded a similar warning on Twitter, saying that SVB’s collapse “could destroy an important long-term driver of the economy.”

“If private capital cannot provide a solution, then a preferred bailout of a highly vulnerable government (s) should be considered.”

According to multiple US media reports, the SVB had discussed a possible purchase with several banks on Thursday and Friday, but could not quickly find a solution.

Champ Bennett, cofounder of video platform Capsule, revealed Friday that $5 million raised in mid-February during the company’s first seed funding round was held up in SVB and is now out of reach.

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“What happens next is anyone’s guess, but it doesn’t look good,” he tweeted.

Bennett said an intervention should not be seen as “taking out ‘The 1’ or ‘Big Tech’,” pointing to “thousands of the most hardworking, talented individuals” at the affected companies who are currently “struggling”. are doing.

According to news website Semaphore, hedge funds are offering SVB’s corporate clients up-front cash, but at a 20 to 40 percent discount.

In addition, Adam Arrigo, boss of virtual gig platform Wave, warned his fellow tech entrepreneurs: “Whether you had money in SVB or not, you are not unaffected. This is going to affect everyone materially.”

Like others, Bennett says he is also concerned about the fate of other banks backed by the tech industry, including First Republic of California, whose share price has plunged 30 percent in two days.

Some view the back-to-back failure of two banks, SVB and Silvergate Bank, as an example of the fragility of the financial system.

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“What happened to everyone talking about how banks (SVB, Silvergate) are safer and better than crypto DeFi?” American investor Arjun Sethi tweeted.

DeFi, or decentralized finance, theoretically allows users to access their funds at any time and without intermediaries, but comes without deposit protections or regulations.

(Except for the headline, this story has not been edited by Our Source staff and is published from a syndicated feed.)

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