Dusseldorf A Berlin founder reports that things started at 8:45 p.m. on Thursday evening: Investors got in touch to ask whether his start-up had invested money with the Silicon Valley Bank. If so, he should withdraw the money “asap” – the acronym stands for “as soon as possible”, i.e. as soon as possible.
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. The focus is probably also on the future of the bank’s British subsidiary. While the bank’s German business is said to have been rather small, some German start-ups probably had money deposited with the bank in Great Britain.
The British SVB subsidiary had already ceased operations on Friday. Some companies were able to withdraw their money in time. However, others, such as companies with fixed-term deposit contracts, did not succeed. As a result, dozens of British startups turned to Treasury Secretary Jeremy Hunt, warning him that the bank’s failure posed an existential threat to their businesses.
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Media reports followed on Saturday, according to which, among other things, a clearing bank that was only two years old was examining a rescue of the British SVB offshoot. “I know that many German companies are following this very, very closely,” says the 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.
At the moment it is unclear whether the companies will get all their money back and if so, when. In Europe, deposit protection applies to deposits of up to EUR 100,000. 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
The bank’s crisis came about because most of its customers are technology companies that want to grow quickly and have large capital requirements. In the recent difficult macroeconomic environment, many of these companies had called back their deposits. That became a problem for the bank because it had mostly lent out the money in long-term bonds that have recently fallen in value.
However, the fact that the bank accepted a billion-dollar loss when selling these bonds and wanted to raise additional money through a capital increase was seen as a dramatic alarm signal on the market. Renowned US venture capital financiers had therefore called on their portfolio companies to withdraw their money. The bank run that was triggered and the collapse of the company that has taken place are now threatening a number of companies there and thus also their financiers.
As things stand at present, 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. It was “luck in disguise that the Silicon Valley Bank in Germany only entered the market “very half-heartedly”, says one investor.
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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. For individual companies, however, the situation is quite critical.
Others have escaped a possible crisis by acting quickly. According to the company, the Berlin travel start-up GetyourGuide was able to withdraw its money from the bank because CFO Nils Chrestin acted quickly.
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.
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.
After venture capitalists in the US caused the collapse of Silicon Valley Bank in the first place, other venture financiers explicitly declared their interest in preserving the bank over the weekend.
Berlin-based venture capital firms HV Capital, Cherry Ventures and Headline, among others, along with major European competitors such as Accel and Atomico, said SVB in the UK is a “trusted and valued partner across the innovation ecosystem” and plays “a key role in supporting and Financing British start-ups”. Should the UK spin-off be bought out and capitalised, we would encourage their portfolio companies to continue the banking relationship.
But the current situation corresponds to the classic prisoner’s dilemma: Nobody knows whether they might not advise individual founders otherwise. And no one wants to be the fool who was the last person to have their money in an insolvent bank.
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