Silicon Valley bank collapse worries tech startups

For FDIC-insured banks, each account is only guaranteed up to $250,000. (representation)

New york:

The stunning collapse of a Silicon Valley bank froze tens of billions of dollars held by startups and their private equity backers, raising fears of a broader downturn in the tech sector.

The company, described on its website as a “financial partner for the innovation economy,” was taken into custody 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.

“They helped us recruit people, helped us get mortgages for transplants, gave financial advice to new executives… So their loss is a real loss,” he said.

The company previously boasted that “about half” of US-backed tech and life science companies came from the bank, leading many to worry about the potential effects of its decline.

For FDIC-insured banks, each account is only guaranteed up to $250,000.

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

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

“The real victims of SVB’s collapse are investors: startups with 10 to 100 employees who can’t pay salaries and have to lay off or lay off workers on Monday,” wrote Harry Tan, head of the popular incubator Y. Combinator.

He warned that “an entire generation of American startups” could be wiped out in a matter of months during the “years of US innovation.”

“Not good”

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

“If private capital cannot provide a solution, a very diluted government (government) bailout should be considered.”

According to several US media reports, SVB discussed a possible acquisition with several banks on Thursday and Friday, but was unable to quickly reach a solution.

Champ Bennett, founder of video platform Capsule, said on Friday that $5 million raised in the company’s first seed funding round in mid-February is sitting on SVB and is not currently available to him.

“Who knows what will happen next, but it doesn’t look good,” he tweeted.

Bennett added that the intervention should not be seen as a “first” or “Big Tech” bailout, pointing to “thousands of the hardest-working, most talented people” at the affected companies that are currently “struggling.”

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

In addition, Adam Arrigo, head of virtual concert platform Wave, warned his fellow tech entrepreneurs: “You’re not affected by whether you have money at SVB or not. It has a significant impact on everyone.”

Like others, Bennett says he worries about the fate of other banks favored by the tech industry, including First Republic of California, whose stock price has fallen 30 percent in two days.

Some see the back-to-back failures of two banks, SVB and Silvergate Bank, as a result of the instability of the financial system.

“What’s up with all the people saying that banks (SVB, Silvergate) are safer and better than Crypto DEFI?” wrote American investor Arjun Sethi.

DeFi, or decentralized finance, allows users to theoretically access their funds anytime and without intermediaries, but comes without deposit protection or regulations.

(Except for the headline, this story was not edited by NDTV staff and was published on a syndicated channel.)

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