“Above all, stay calm. » For more than 72 hours now, Nikhil Basu Trivedi has been repeating this mantra over and over again to start-ups panicked by the sudden closure of Silicon Valley Bank (SVB). Like tens of thousands of Tech players, this investor and co-founder of Footwork, a venture capital company that supports the development of young companies, was caught in the whirlwind of the crisis generated by the spectacular collapse of one of the financial pillars of Silicon Valley.
“Many of us VCs (venture capitalists),work behind the scenes, with law firms, to find the best way to ensure that our portfolio companies will be able to pay salaries to their employees (this week) and meet their other short-term obligations,” Nikhil Basu Trivedi explained on Twitter on Friday.
Many start-ups among customers
Although little known to the general public, the SVB plays a key role in the Tech economy. The 16th largest bank in the United States, the financial establishment was founded in the San Francisco Bay Area in 1983, around a game of poker between the two founders, Bill Biggerstaff and Robert Medearis. It now counts among its clients nearly half of the American start-ups financed by venture capital, listed on the stock exchange in 2022.
Its implosion this week represents the largest bank failure in the United States since 2008, affecting companies such as the video game platform Roblox, the online craft sales company Etsy, the community sharing site Vimeo, or the group of media on the Internet Vox Media.
Banking panic
The financial lung of Silicon Valley has been the victim of a classic bank run : a banking panic. The SVB made the mistake of investing more than half of its assets in Treasury bills and other government bonds, long-term investments. But, faced with the rapid rise in interest rates, the bonds lost value, pushing the bank to recoup its losses. In trying to raise new capital, she scared off her depositors who abruptly withdrew their money.
The SVB ended up being placed in receivership on Friday by the banking authorities. Entrusted to the American Deposit Guarantee Agency (FDIC), the bank must now be sold. As of Monday, its customers will be able to withdraw up to $250,000 (the amount insured by the FDIC). But it is not guaranteed that depositors with more will be able to recover everything. In total, tens of billions of dollars are blocked today.
Meanwhile, panic reigned all weekend in Silicon Valley, where many start-ups fear they won’t be able to pay their employees this week. Some will be forced on Monday to lay off.
“Many dead under the rubble”
“It’s an earthquake. We were all waiting for the Big One in California: here it is,” notes French entrepreneur Carlos Diaz, founder of Uncut, a platform for monetizing content through the sale of NFTs. “It will take days to clear… And there may be a lot of dead under the rubble. »
Like all Tech players, Carlos Diaz “did not see this cataclysmic event coming which brought the SVB to its knees” et “exposed more than 10,000 start-ups to ruin”. For the entrepreneur, this is partly due to the fact that the bank “enjoyed great trust from the ecosystem”.
For Garry Tan, CEO of influential start-up incubator Y Combinator, if the government does not intervene and SVB customers “have to wait weeks or months to get their money, we will have destroyed an entire generation of start-ups”.
An unlikely contagion effect
The setbacks of the SVB also temporarily wavered the stock markets on Thursday, causing the four largest US banks to lose $52 billion. But most financial experts seemed to rule out this weekend the possibility of a contagion effect on the whole banking sector, as in 2008.
In addition to regulators who have become more demanding, “the system has never been as well capitalized as it is today, said Saturday Mark Zandi, chief economist of Moody’s Analytics. The banks that are currently in trouble are far too small to pose a significant threat to the whole system. »