S ilicon valley is a tough place to be a banker. Startup bosses call with references but no revenue. Loans can seldom be secured against physical asse

What the loss of Silicon Valley Bank means for Silicon Valley

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2023-03-15 02:00:03

S ilicon valley is a tough place to be a banker. Startup bosses call with references but no revenue. Loans can seldom be secured against physical assets. Many clients fail. Silicon Valley Bank (svb) netted nearly half of America’s venture-backed technology and life-science firms as clients by providing what a venture capitalist calls the “the white-glove, red-carpet treatment”. This was not just about the lunches and events put on by the bank: svb established itself as a reliable cog in Silicon Valley’s dream machine. In the Financial Times, Michael Moritz of Sequoia Capital, a grand venture-capital outfit, lamented the loss as akin to a “death in the family”.

Thanks to regulators, svb’s demise has not meant a Silicon Valley cash crunch. Tech workers need only worry about their jobs as much as they did before last week. For some, relief at a bullet dodged has turned into anger at the firms quickest to pull deposits, helping to bring down their beloved bank. The next stage of grief ought to be sober risk management. According to the venture capitalist, the chance to replace svb as banker to Silicon Valley is a “tremendous opportunity”. There will be no shortage of institutions with eyes on the $300bn of venture-capital dry powder waiting to be ploughed into startups. But svb’s collapse will scale back Silicon Valley’s ambitions in other ways.

Exactly where the dust and deposits settle is uncertain. Reports suggest regulators are attempting another auction of svb, having been unable to find a buyer at the weekend. Banks and private-equity funds are circling. Startups are finding new homes for their cash. In the chaos of last week, companies with accounts elsewhere transferred their funds. Others tripped on red tape as they frantically opened new ones. Some even wired money to personal accounts. Fintechs had a busy weekend, too. Brex, one such firm, opened 3,000 new accounts. Yet relationships between fintechs and regional banks, which have suffered in the wake of svb’s collapse, may scare off potential long-term clients.

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