The collapse of Silicon Valley Bank sent shockwaves across the technology sector, which had been the bank’s backbone.
Entrepreneurs were grateful for the government bailout that rescued their money, but many lamented the loss of a location that had functioned as a friendly club for creativity.
In a Monday interview, Stefan Kalb, CEO of Seattle firm Shelf Engine, stated, “They were the gold standard. It almost seemed bizarre if you were in tech and didn’t have a Silicon Valley Bank account.”
Israel, whose thriving tech industry is “connected with an umbilical cord to Silicon Valley,” experienced a “palpable sigh of relief” as a result of the Biden administration’s decision to guarantee all Silicon Valley Bank deposits above the insured limit of $250,000 per account, according to Jon Medved, founder of the Israeli venture capital crowdfunding platform OurCrowd.
But among business owners and venture capital partners shaken by Silicon Valley Bank’s collapse, there was gratitude for the deposit guarantees that will continue to let thousands of tech businesses pay their employees and other costs while there were also reflective moments.
The crisis “has driven every company to rethink their banking arrangements and the organizations they engage with.”
According to Rajeeb Dey, CEO of Learnerbly, a workplace learning startup based in London.
Entrepreneurs who had placed all of the capital for their firms in Silicon Valley Bank are now discovering that it makes more sense to disperse their wealth among several financial institutions, with the largest banks being regarded as safer havens.
Kalb began the day by creating an account at JP Morgan Chase, the biggest bank in the country with around $2.4 trillion in deposits. The deposits at Silicon Valley Bank, the 16th-largest bank in the country, are 13 times lower than that amount.
The funds that Electric Era had placed at Silicon Valley Bank are being partially transferred to Bank of America, and Quincy Lee, the CEO of the Seattle-based business, anticipates that it won’t be challenging to find additional recipients for the remaining funds as part of its diversification strategy.
However, there are concerns that it will become more challenging to finance the inherently risky ideas that underlie tech startups, which have become a specialty of Silicon Valley Bank since its establishment in 1983 during a game of poker. This is even though introducing the personal computer and faster microprocessors unleashed more innovation.
Silicon Valley swiftly became known as the “go-to” location for venture capitalists seeking financial partners more receptive to novel business ideas than its larger, more established competitors who were still lagging in terms of technology.
Just as the tech sector began to expand, venture investors opened accounts at Silicon Valley Bank and recommended the entrepreneurs they were funding do the same.
Their friendly relationship ended when the bank revealed a $1.8 billion loss on low-yielding bonds bought before interest rates spiked last year. This alarming news sparked a disastrous run on deposits among its tech-savvy customer base.
The sudden influx of withdrawal requests from Silicon Valley Bank last week was compared by Bob Ackerman, the founder and managing director of AllegisCyber Capital, to a self-inflicted wound by “a circular firing squad” out to “kill your closest friend.”
Lin anticipates that fewer firms will receive funding to pursue concepts in the exact technological domains now that Silicon Valley Bank has closed and venture capitalists are tightening their purse strings.
If that occurs, he predicts a thinning of the market that will eventually make the top tech giants even more powerful than they already are.
“There’s a true day of reckoning coming in the startup sector,” warned Amit Yoran, CEO of the cybersecurity firm Tenable.
That may be the case, but business owners like Lee and Kalb already feel like they have been put through the emotional ringer after spending the weekend stressing that if they couldn’t get their money out of Silicon Valley Bank, all of their hard work would be for nothing.