The Hamilton Spectator

Silicon Valley Bank’s demise spurs a rethink

Risky ideas underlying startups may become harder to finance

- MICHAEL LIEDTKE

Silicon Valley Bank’s collapse rattled the technology industry that had been the bank’s backbone, leaving shell-shocked entreprene­urs thankful for the government reprieve that saved their money while they mourned the loss of a place that served as a chummy club of innovation.

“They were the gold standard, it almost seemed weird if you were in tech and didn’t have a Silicon Valley Bank account,” Stefan Kalb, CEO of Seattle startup Shelf Engine, said during a Monday interview as he started the process of transferri­ng millions of dollars to other banks.

The Biden administra­tion’s move guaranteei­ng all Silicon Valley Bank’s deposits above the insured limit of $250,000 (U.S.) per account resulted in a “palpable sigh of relief” in Israel, where its booming tech sector is “connected with an umbilical cord to Silicon Valley,” said Jon Medved, founder of the Israeli venture capital crowdfundi­ng platform OurCrowd.

But the gratitude for the deposit guarantees that will allow thousands of tech startups to continue to pay their workers and other bills was mixed with moments of reflection among entreprene­urs and venture capital partners rattled by Silicon Valley Bank’s downfall.

The crisis “has forced every company to reassess their banking arrangemen­ts and the companies that they work with,” said Rajeeb Dey, CEO of London-based startup Learnerbly, a platform for workplace learning.

Entreprene­urs who had deposited all their startups’ money in Silicon Valley Bank are now realizing it makes more sense to spread their funds across several institutio­ns, with the biggest banks considered safer harbours.

Kalb started off Monday by opening an account at the largest in the U.S., JP Morgan Chase, which has about $2.4 trillion in deposits. That’s 13 times more than the deposits at Silicon Valley Bank, the 16th largest in the U.S.

Bank of America is getting some of the money that Electric Era had deposited at Silicon Valley Bank, and the Seattle startup’s CEO, Quincy Lee, expects having no difficulty finding other candidates to keep the rest of his company’s money as part of its diversific­ation plan.

“Any bank is happy to take a startup’s money,” Lee said.

Even so, there are fears it will be more difficult to finance the inherently risky ideas underlying tech startups that became a specialty of Silicon Valley Bank since its founding over a poker game in 1983, just as the advent of the personal computer and faster microproce­ssors unleashed more innovation.

Silicon Valley quickly establishe­d itself as the “go-to” spot for venture capitalist­s looking for financial partners more open to unconventi­onal business proposals than its bigger, more establishe­d peers who still didn’t have a good grasp of technology.

“They understood startups, they understood venture capital,” said Leah Ellis, CEO and co-founder of Sublime Systems, a company in Somerville, Mass., commercial­izing a process to make low-carbon cement. “They were woven into the fabric of the startup community that I’m part of, so banking with SVB was a no-brainer.”

Venture capitalist­s set up their accounts at Silicon Valley Bank just as the tech industry started its boom and then advised the entreprene­urs that they funded to do the same.

That cosy relationsh­ip came to an end when the bank disclosed a $1.8billion loss on low-yielding bonds that were purchased before interest rates began to spike last year, raising alarms among its financiall­y savvy customer base who used the fruits of technology to spread warnings that turned into a calamitous run on deposits.

Bob Ackerman, founder and managing director of venture funder AllegisCyb­er Capital, likened last week’s flood of withdrawal demands from Silicon Valley Bank to a self-inflicted wound by “a circular firing squad” intent on “shooting your best friend.”

Silicon Valley Bank is fading away at a time when startups were already having a tougher go at raising money, with a downturn in technology stock values and a steady ride in interest rates caused venture capitalist­s to retrench.

“There’s going to be a lot of great ideas, a lot of great teams that don’t get funding because the barriers to entry are too high or because there are not enough people who are willing to invest,” said William Lin, cofounder of cybersecur­ity startup Symmetry Systems and a partner at the venture capital firm ForgePoint.

 ?? JEFF CHIU THE ASSOCIATED PRESS ?? Entreprene­urs who had deposited all their startups’ money in Silicon Valley Bank are now realizing it makes more sense to spread their funds across several institutio­ns, with the biggest banks considered safer harbours.
JEFF CHIU THE ASSOCIATED PRESS Entreprene­urs who had deposited all their startups’ money in Silicon Valley Bank are now realizing it makes more sense to spread their funds across several institutio­ns, with the biggest banks considered safer harbours.

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