SVB Collapse May Lead To a Startup Disaster in the US
Are US startups on the verge of a collapse? A new shocking incident happened recently in which the world witnessed the collapse of Silicon Valley Bank. It has resulted in the freezing of tens of billions of dollars deposited there by startups and their private equity backers. The incident has prompted fears of a wider tech sector collapse. The company, whose website describes it as “the financial partner of the innovation economy,” was taken over by the Federal Deposit Insurance Corporation (FDIC) of the United States to avert additional damage.
Joseph DeSimone, a professor at Stanford University and founder of multiple firms, told AFP,
SVB knew the entrepreneurial culture. They assisted us in recruiting personnel, obtaining mortgages for transplants, and advising new executives on financial matters… Thus, their disappearance is a true tragedy.
Previously, the business bragged that “almost half” of US-funded technology and life science startups banked with them, causing many to fear the possible ripple consequences of its failure. FDIC-insured banks guarantee a maximum of $250,000 per account. Yet, according to SVB’s most recent annual report, 96 percent of its $173 billion in deposits were not insured.
The FDIC stated on Friday that all depositors will have immediate access to their protected savings, but that the remainder will depend on how much is recovered via the bank’s asset sales, which can take a considerable amount of time.
“The actual victims of the SVB disaster are the depositors: businesses with 10 to 100 employees who are unable to make payments and will have to furlough or shut down staff,” tweeted Garry Tan, chairman of the renowned incubator Y Combinator.
He warned that “years of US innovation” are in jeopardy and that an entire “generation of American startups” might be wiped out within a couple of months.
William Ackman, an activist investor, issued a similar warning on Twitter, stating that SVB’s failure “may kill a vital long-term economic driver.” “A highly dilutive government-preferred bailout should be explored if private capital cannot supply a solution”
According to multiple US media sources, SVB considered a possible acquisition with other banks, but could not find a deal quickly enough. Champ Bennett, co-founder of the video platform Capsule, disclosed that the $5 million raised in mid-February during the company’s first seed investment round is currently inaccessible at SVB.
