Dusseldorf. Berlin At Getyourguide, it was lucky that CFO Nils Chrestin was sitting in front of his laptop on Thursday afternoon: In the middle of a meeting, he got the alarm that Silicon Valley Bank (SVB) was planning a capital increase. “I got the notification, looked at the stock price and immediately announced that we were withdrawing our money,” says the manager.
The Berlin travel start-up managed to transfer an amount in the double-digit millions to another account before the bank had to close.
It was also close at re:cap. The Berlin fintech initiated a money transaction at the beginning of the week, which went through on Friday. It may have been one of the bank’s last transfers.
Shortly thereafter, the SVB announced that it would initiate insolvency proceedings. “We have sufficient funds in the medium term. We can handle our existing business as well as new financing,” says re:cap boss Paul Becker of the Handelsblatt. Good news for his customers who work at re:cap receive their expected monthly subscription payments for a year in one fell swoop.
The SVB was the main financial institution for young tech companies in the USA. But its collapse on Friday should also have direct consequences for German start-ups and their founders. Because the financier was also active in this country, courting young companies with attractive conditions.
Many German start-ups are SVB customers
Many German start-ups and younger listed companies such as the recipe box mail order company HelloFresh and the air taxi company Lilium are customers there. They got lines of credit from the German branch and had deposits in part in the USA as well as in the British subsidiary.
British Treasury Secretary Jeremy Hunt promised on Sunday that a longer-term solution would be worked on. He did not say whether this also includes foreign start-ups that have deposited money with the British subsidiary. The British SVB subsidiary ceased operations after the US parent company on Friday. Some companies were able to withdraw their money in time. Others, such as companies with time deposit contracts – i.e. deposits with a fixed term of usually several months – did not succeed.
It is unclear exactly what effects and to what extent German companies are affected. The managing director of the German Start-up Association, Christoph Stresing, says: “The extent is not entirely clear.” So far, he only knows of isolated cases.
In the past, the SVB has published little data for Germany and Europe. According to the latest information, she is said to have counted 3,600 customers in Europe. Around ten percent of them are said to come from Germany. In Germany, the SVB has had a partial bank license for granting loans since 2018. According to Handelsblatt information, the banking supervisory authority BaFin should be in constant contact with the SVB representatives.
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Because most start-ups have negative cash flow and live off their investors’ money and loans, the situation is particularly critical. “I know that many German companies are following this very, very closely,” says a Berlin founder who wishes to remain anonymous. He also referred to a form from the UK Treasury and Economy Department that companies can use to report the size of their deposits with UK SVB, how much money they need each month and whether they have other accounts with other banks. Many German founders would have used this form.
Robin Godenrath, Partner at early-stage investor Picus Capital says: “We have been working closely with our portfolio companies since last week and continue to do so to mitigate potential risks associated with Silicon Valley Bank. It now remains to be seen how much and how quickly capital can be returned by the regulator when bank assets are liquidated.”
At the moment it is unclear whether the companies will get all their money back and if so, when. In Great Britain, deposit protection applies to deposits of up to 85,000 pounds, which is currently just under 96,000 euros. In many cases, this should only be a fraction of the money deposited.
In the case of SVB in the US, where deposits are protected up to $250,000, 93 percent of deposits were said to be uninsured.
German start-up scene probably not facing a structural crisis
At the height of the tech boom, tech firms had been inundated with venture capital and deposited some of it with the SVB. However, they did not risk-consciously invest the money in short-dated securities, but bought long-dated mortgage bonds. In the zero-interest environment of the time, these yielded slightly higher returns than short-dated securities, but now the money is tied up for up to ten years. At the same time, given the rise in interest rates, the values of these bonds have fallen. If the SVB were to throw them on the market now, they would have to accept billions in losses.
According to the industry service Techcrunch, around 30 percent of start-ups in the UK are said to be affected, and ten percent could get into trouble, the service writes with reference to industry insiders.
It currently looks as if the German start-up scene is less threatened by a structural crisis. The local companies and their financiers benefit from the fact that fewer young companies had deposited their money with the SVB. Berthold Baurek-Karlic from the Viennese investment company Venionaire says it is “a stroke of luck that the Silicon Valley Bank only entered the market “very half-heartedly” in Germany.
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In the lenders’ portfolios, only a few companies are affected or they only have part of their money with the Silicon Valley Bank. This was the case with GetyourGuide, for example: “We have good risk management, so that we are not so dependent on a single bank,” says Nils Chrestin. According to its own statements, Wefox, a large Berlin insurance start-up, works exclusively with major banks.
For individual companies, however, the situation should be quite critical. Those affected kept themselves covered about the extent. A Berlin fintech founder stated that he was a customer of the SVB. The start-up’s money would currently last for months.
The vacation rental platform Holidu was lucky, as it no longer relies on lines of credit from the SVB after the latest round of financing. The Berlin Fintech Liquid was meanwhile also a customer of the SVB. “But not anymore. We wanted to diversify and also asked ourselves how the SVB could finance its positive interest rates when other banks only offered negative interest rates,” says company boss Christian Schneider-Sickert. They would never have had customer money with the SVB.
Risk financiers are interested in preserving the bank
The bank was popular among founders on the one hand because it also lent money to young, loss-making companies that would have had little chance of getting loans from other banks. On the other hand, because it organized many events where founders and investors could network.
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In addition, the bank is said to have regularly invested in funds when a founder sold his company or made new investments from the proceeds. Accordingly, many entrepreneurs also had their private money with the Silicon Valley Bank. Some are said to now have significant wealth concerns.
But there is still no all-clear for companies and founders who have not yet been directly affected: “Of course, the question is also what the long-term effects of bankruptcy will be,” says Stresing from the start-up association. Because after the high in the corona crisis, the mood in the start-up industry was already very subdued even before the SVB crisis.
After venture capitalists in the US first triggered the collapse of the Silicon Valley Bank with warnings to their portfolio companies, other venture financiers expressly declared their interest in preserving the bank over the weekend.
The Berlin-based venture capital firms HV Capital, Cherry Ventures and Headline, among others, shared with major European competitors such as Accel and Atomico: SVB in Great Britain is a “trusted and valued partner” and plays “a central role in supporting and financing British startups”. Should the UK arm be bought out and capitalised, they would encourage their portfolio companies to continue the banking relationship.
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