The collapse of Silicon Valley Bank could result in severe damage to the Cambridge tech ecosystem unless the government steps in to minimise the impact on the tech companies that were the banks main customers, according to Cambridge investment experts.
The crisis began on Wednesday (March 8) when the specialist bank announced a sale of assets including US government bonds had been negatively impacted by higher interest rates and it was looking to fill a $1.8bn loss via the issue of new shares to shore up its balance sheet.
Silicon Valley Bank (SVB), founded in 1983, opted to sell $21bn of bonds at a $1.8bn loss, causing consternation. Venture capitalists, far from being reassured that the balance sheet was set to stabilise, were the first to get their money out. By Thursday afternoon the share price had dropped 60 per cent. By Friday, the California-headquartered bank had been placed under receivership with the US Federal Deposit Insurance Corp (FDIC).
Its UK subsidiary, Silicon Valley Bank UK – a standalone entity with its own balance sheet and governance structure – is due to be put into insolvency from Sunday evening, but the view in Cambridge is that the government must step in to save the fallout in the sector it once touted as being at the heart of Britain’s economy in the 21st century.
George Neville-Jones, co-founder of Cambridge Future Tech and a former local director of Cambridge’s Metro Bank, appealed for the government to intervene to support the bank, telling the Cambridge Independent: “It is absolutely essential that the UK government and banking sector act to ensure the tech sector sees minimal impact from this structural failure.”
He added: “We are aware of at least one who had a very close call, they moved all funds on Thursday. I know others who bank or split-bank with them.”
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Jason Mellad, CEO and co-founder of healthcare accelerator Start Codon, also appealed for intervention.
He said: “The UK government must act quickly and decisively to ensure that the full deposits of SVB’s clients are available next week to prevent a full-blown financial crisis that could hobble the British tech industry for a generation.
Jason added: “We and a myriad number of organisations are impacted by the SVB collapse.
“Whether you’re one of their clients – as we and several of our portfolio companies are – or a tech start-up funded by one of the numerous investors who bank with SVB, or indeed any organisation operating in our sector, the reverberations are being felt far and wide.
“Tens of thousands of jobs and decades of innovation are already at risk.”
George noted that the collapse comes at a time of rising interest rates creating a slow investment environment. Indicating that the SVB management faced a difficult market, he said the failed bid to find new capital “is a symptom of the reduction in capital in the venture capital industry over the past 12 months”.
He added: “Combine this with the change in bond economics and you have a perfect storm where both the capital and liquidity of the bank came under unusual pressure.
“Their business model was only as risky as any specialist sector bank’s. They relied on the tech sector remaining liquid and didn’t have the balance sheet strength to survive this downturn in the sector’s fortunes.
The Bank of England issued a statement on Friday (March 10), saying: “The Bank of England, absent any meaningful further information, intends to apply to the court to place Silicon Valley Bank UK Limited (‘SVBUK’) into a Bank Insolvency Procedure. A Bank Insolvency Procedure would mean that eligible depositors are paid out by the FSCS as quickly as possible up to the protected limit of £85,000 or up to £170,000 for joint accounts. SVBUK’s other assets and liabilities would be managed in the insolvency by the bank liquidators and recoveries distributed to its creditors. SVBUK has a limited presence in the UK and no critical functions supporting the financial system. In the interim, the firm will stop making payments or accepting deposits.”
