SVB Crash: Key lessons from tech founders
By Zion Rufus
The collapse of Silicon Valley Bank(SVB), a leading bank for Silicon Valley tech companies, has left the startup ecosystem vulnerable to the devastating impact of its closure.
Best known for extending lines of credit to startups and venture capital firms, for nearly four decades, SVB has been a trusted long-term partner to the venture capital industry, serving the startup community and supporting the innovation ecosystem in the United States of America.
“The one thing folks don’t realize about this place called Silicon Valley is its secret sauce has never been the capital it once loosely threw around; its secret sauce has always been its community, founders helping founders in a close knit community, like “how can I help with our clarion call?” It feels like we lost that for a moment on Thursday as SVB fell,” Iyinoluwa Aboyeji, Nigerian entrepreneur and co-founder of Andela posed in a LinkedIn post.
Although the Federal Deposit Insurance Corporation(FDIC) has stated that insured depositors will have access to their deposits no later than Monday morning, and that it will pay uninsured depositors an advanced dividend within the next week, Ham Serunjogi, Co-founder and CEO of Chipper Cash disclosed that businesses still have to make difficult but necessary adjustments.
“I speak constantly with other CEOs who are all having to navigate their companies through these uncertain times. We are definitely living through a very tough and uncertain time not just in our entire industry, but across the entire global economy,” Serunjogi said in a release, adding that Chipper will continue working hard towards enabling people in Africa to move and interact with their money freely.
As entrepreneurs now scramble to find new banking solutions to keep their businesses running in the aftermath of the bank’s downfall, tech founders and marketing professionals have shared key lessons drawn from the recent crisis.
“The truth is, no one knows which bank is safest. We should get a full glimpse of things in the coming days/weeks. I am not sure how many startups in Africa rely on SVB for their operational expenses or deposits because of the challenge African startups face when opening an account with SVB,” Yinka Bolaji, CTO and founder of Wallify.
“I think the lesson here is that startups should always diversify their funds to reduce such exposure using one bank. The impact now is that access to startup funding will become more difficult for the African startup ecosystem.”
Victor Ogunbiyi, Co-founder Elvera Tech, urged companies to constantly innovate and adapt to changing market conditions and consumer needs, stay compliant to regulations, embrace diversity and inclusion, and prioritize maintaining trust with their clients and the public by acting ethically and transparently.
“Failure to do so can result in falling behind the competition and losing clients. The downfall of SVB serves as a cautionary tale for companies in the tech industry and beyond, and my heart goes out to the whole team of employees who have no job to wake up to on Monday. By learning from the bank’s mistakes and taking steps to prioritize innovation, diversity, compliance, and trust, businesses can better position themselves for success in the future,” Ogunbiyi said.
Sharing similar viewpoint, Babatunde Akin Moses, Nigerian entrepreneur and co-founder of risk assessment startup Sycamore.ng buttressed the importance of companies having more diversified investment portfolios and customer base.
For Moses, the most important lesson however, can be drawn from information mis-management, pointing out that mass panic can be inadvertently sparked by publicly available information, either through traditional or social media.
In light of the recent events, Onyeka Akumah, Co-founder and CEO Streep’s Inc, believes that affected companies should keep the lines of communication open with shareholders, activate emergency cash management, control what they can control, and consider short term loans.
He said: “You obviously can’t control what happens when the banks open today, but you can map out the different scenarios and plan your response, e.g. what to do if you are only able to withdraw a small portion of your uninsured deposit from SVB. Emergency cash management means looking forensically at every payment and receivable due over the next four weeks. Figure out which payments you can postpone, and how you can be paid faster. Often that means picking up the phone, and asking for payment today. You can even offer clients a sweetener of 10% discount.”
Meanwhile, HSBC Holdings plc has announced that its UK ring-fenced subsidiary, HSBC UK Bank plc, is acquiring Silicon Valley Bank UK Limited (SVB UK) for £1.
As at 10 March 2023, SVB UK had loans of around £5.5bn and deposits of around £6.7bn. For the financial year ending 31 December 2022, SVB UK recorded a profit before tax of £88m. SVB UK’s tangible equity is expected to be around £1.4bn. Final calculation of the gain arising from the acquisition will be provided in due course.
The assets and liabilities of the parent companies of SVB UK are excluded from the transaction. The transaction completes immediately. The acquisition will be funded from existing resources.
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