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Wednesday, March 29, 2023

Panic in global startups due to contagion effect of SVB

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Contagion fears have reached Canadawhere the bank’s loan portfolio has doubled in the last year. The SVB’s UK unit is about to be declared insolventhas already stopped operating and is no longer accepting new clients.

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On Saturday, the leaders of some 180 technology companies sent a letter calling for the intervention of the UK Chancellor, Jeremy Hunt.

“The loss of deposits has the potential to paralyze the sector and set the ecosystem back 20 years,” they said in the letter seen by Bloomberg. “Many companies will be sent to involuntary liquidation From overnight”.

This is just the beginning. SVB also had branches in China, Denmark, Germany, India, Israel and Sweden.. The founders warn that the bankruptcy of the bank could wipe out startups around the world without government intervention. SVB’s China joint venture, SPD Silicon Valley Bank Co., was seeking to appease local customers reminding them that operations have been independent and stable.

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“This crisis will start on Monday, so we ask you to avoid it now,” the founders and CEOs of UK start-ups said in the letter to Hunt. Companies listed in the letter include Uncapped, Apian, Pockit and Pivotal Earth.

Hunt spoke with the governor of bank of england about the situation Saturday morning, and the Treasury’s economic secretary held a roundtable discussion with affected businesses later that day, the Treasury said.

Underlining the challenge governments face in managing the full scope of the consequences: the UK Treasury has started polling new businesses, asking how much they have on deposit, their approximate cash consumption and their access to banking facilities at SVB and further, two people familiar with the matter said, asking not to be named because the information is not public. Treasury declined to comment on the survey.

The founders eagerly awaited the outcome of the roundtable and any information on how your bank deposits would be handled. Toby MatherCEO of educational software startup Lingumi, you have 85% of your company’s cash in SVB. He tried to transfer his SVB accounts using an iPhone app, but as of Saturday night, he wasn’t sure if that worked. “This is life or death for us,” he said. “These things seemed so mundane before.”

Jack O’Mearafounder of London genomics startup Ocher Bio, spent the weekend unsuccessfully trying to withdraw deposits from SVB. “If there is no intervention,” he said, “it could really wipe out a generation of entrepreneurial companies.”

US congressman Ro Khanna of Santa Clara held a gathering on Friday night that was attended by more than 600 people, including startup founders, technology leaders and SVB employees. It went on for over 2.5 hours with the main focus on small businesses trying to do payroll across the country on Monday.

SVB’s clients in California, many of them founders of start-upsstood outside the bank’s branch on Silicon Valley’s famous Sand Hill Road in the cold and rain on Friday, knocking on the closed glass doors and trying to get the representatives of the Federal Deposit Insurance Corporation to answer your questions.

A founder of a drone startup said a withdrawal she made on Thursday had not materialized and that he was worried about paying the payroll for his 12 full-time employees. She had tried calling the FDIC several times, “but the number is not answering,” she said.

Another customer commented that he should have brought a bottle of whiskey to pass while they waited. When trying to get more information from an FDIC representative, he said, “Put yourself in our shoes.” The representative apologized before closing the glass door once more.

Some in the VC and startup world are trying to find temporary solutions. Uncappeda UK fintech startup that lends to other startups, said it is launching an emergency financing program to help businesses meet payroll and other obligations, as well as longer-term bridging loans to help with working capital.

Alexander Fitzgerald, founder of broadband startup Cuckoo and a former Treasury official, noted that UK start-up finances are already stretched due to a slowdown in the venture capital funding market. “UK startups need the Treasury to step in quickly“, said.

In Canadathe unit of SVB Financial Group in the country reported 435 million Canadian dollars (314 million dollars) in loans guaranteed last year, double the C$212 million a year earlier, regulatory documents show. Its clients include e-commerce software provider Shopify Inc. and pharmaceutical company HLS Therapeutics Inc., according to a previous statement from the bank.

The ad tech firm Acuity Ads Holdings Inc.based in Toronto, revealed on Saturday that he had US$55 million in deposits at SVBwhich represents more than 90% of your cash. The firm halted trading in its shares on Friday after a 14% drop, citing the “developing situation” with Silicon Valley Bank.

Source: Ambito

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