Breaking: Silicon Valley Bank collapse – what it means for the STR sector
Worldwide: The governments and banking institutions in the United States and UK have stepped in to reassure people and businesses exposed to the collapse of Silicon Valley Bank [SVB] and its UK arm that their deposits are secure and resolutions will not put the taxpayer at risk.
California-based Silicon Valley Bank, the 16th largest bank currently in the United States, was closed on 10 March by the California Department of Financial Protection and Innovation, which later appointed the Federal Deposit Insurance Corporation [FDIC] as its receiver. The collapse of SVB, which specialises in lending to tech companies and startups, is the largest failure of a US bank since Goldman Sachs during the financial crash in 2008, and sent shockwaves reverberating around the world.
Following a frantic weekend of panic and negotiations, US Treasury Secretary Janet Yellen approved measures alongside the Federal Reserve that enabled the FDIC to complete its resolution of Silicon Valley Bank that fully protects all creditors and “strengthens public confidence” in the US banking system. As a result, depositors will have access to all of their money and no losses associated with the resolution of SVB will be borne by the taxpayer.
The Biden administration has also made the almost unprecedented move to backstop billions of dollars in uninsured money to quell fears of further repercussions after the bank’s collapse, and reassured SVB customers that they would have full access to their deposits.
Silicon Valley Bank is reported to be set to enter administration, while New York-based Signature Bank is also on the brink after it was closed by its state chartering authority. Signature represents the third US bank to go under in the space of one week after Silvergate, a leading lender in the cryptocurrency market, wound down its operations and pledged to pay back depositors.
Meanwhile in the UK, a deal has been agreed for HSBC to buy Silicon Valley Bank’s UK subsidiary for £1, meaning that customers and businesses who have money deposited in SVB UK will be able to access it as well as other banking services. The Treasury said that the sale, facilitated by the government and the Bank of England, involved no taxpayer money and the Bank of England stated that deposits were secure.
As of 10 March, SVB UK had loans of around £5.5 billion and deposits of £6.7 billion, and recorded pre-tax profits of £88 million for the financial year ending 31 December 2022.
HSBC Group chief executive Noel Quinn told the BBC that UK customers of SVB could “continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC”.
Prior to the HSBC announcement, the likes of Barclays and clearing bank Bank of London are believed to have submitted proposals to acquire the SVB UK arm. In the US, Twitter CEO Elon Musk hinted that he was “open” to the idea of buying the US bank.
The downfall of Silicon Valley Bank can be traced back to the company loaning money at low interest rates to tech startups, at the same time as interest rates have shot up in a short period of time. In that period, the bank has had to liquidate assets to cover the sizeable shortfall, leaving SVB unable to lend money and continue trading because its cost of borrowing is significantly higher than what it sets for its clients.
Many of the bank’s long-term clients, including venture capital firms and VC-backed companies, began withdrawing their deposits from Silicon Valley Bank, creating a run on the bank that left entrepreneurs and investors unnerved and SVB unable to pay its obligations.
Among SVB’s clients, investors at the likes of Sequoia and Andreessen Horowitz, both supporters of cryptocurrency, have raised concerns about the bank’s financial position and liquidity, and whether there would be a knock-on effect to them. SVB recently sold $21 billion worth of securities holdings to shore up its balance sheet, although it still came in at a $1.8 billion loss.
In the UK and Europe, confusion still reigns among venture capital firms and startups over the banking turmoil.
SVB UK clients are likely to have separate SVB US accounts for business trading, as SVB in the UK is a wholly-owned subsidiary of the US bank. This means that its balance sheet is ring-fenced and the US has no ability to draw assets from the UK.
The actions of both the US and UK governments have alleviated at least some of the immediate knock-ons to tech startups and companies who had accounts with Silicon Valley Bank.
In the US, businesses will be able to draw money and pay salaries for as long as the government will pay for it, but the full impact of SVB’s collapse may only become clear this week. This is particularly relevant to the short-term rental sector, where many [tech] startups have accounts with or have borrowed from SVB in the past.
STRz gathered the thoughts of industry leaders for their reactions to the SVB crisis:
• When asked on Twitter by short-term rental investor Ryan Danz to “publicly assure its host community and partners that it has no exposure to SVB”, Airbnb CEO Brian Chesky said that his company had not had money in Silicon Valley Bank “in perhaps six or eight years”. He added that it was an issue that is “disproportionately affecting smaller [more vulnerable] companies, which makes the situation all the more tragic”.
• On 10 March [Friday], Sonder released a statement saying that, as of 9 March, it had approximately $2 million in an operating cash account and approximately $20 million in deposit accounts with Silicon Valley Bank. The company also held a $60 million line of credit facility with SVB issued in the ordinary course of business for the benefit of property owners and other counterparts, of which $13 million was being utilised in the form of letters of credit.
• Andrew McConnell, founder and CEO of Rented [and GM revenue management, TravelNet Solutions], said prior to Monday’s announcement: “SVB has been a fixture of the tech universe for as long as I have been in it. While they often served early-stage companies that many might have perceived as risky investments in themselves, until this year I can’t remember a single concern about the viability of SVB itself ever being raised.
“The trickle down effects of what happened last week are still to be understood, much less felt. I sincerely hope I am wrong here, but in a world where at this point every company is a tech company [at least in some capacity], if this is not handled quickly and properly, the outcome could be catastrophic for many far outside the world of Silicon Valley,” he added.
• Munich-based holiday rental booking portal Holidu closed a $98 million [€100 million+] Series E funding round in October to expand in Germany and across Europe. The round was led by global venture capital firm 83North, with participation from Northzone, HV Capital, Vintage Investment Partners, Commonfund Capital, Prime Ventures, EQT Ventures, coparion, Senovo, Lios Ventures and Possible Ventures, with a venture debt component of $24.5+ million [€25+ million] in funding from Silicon Valley Bank and Claret Capital.
• Edinburgh-based holiday rental marketing platform TravelNest secured £1.8 million from Silicon Valley Bank and Scottish Enterprise in December 2020.The startup’s product aims to improve occupancy rates for holiday rental properties by automating marketing and increasing exposure on booking sites such as Airbnb, Booking.com, Expedia, TripAdvisor and Vrbo, while reducing administration time for property owners.
• Navan [formerly TripActions] secured a $500 million credit facility for a new corporate travel product from Silicon Valley Bank in February 2020. Then in early December 2022, less than two months after announcing a $9.2 billion valuation and just prior to its rebranding as Navan, the company secured another $400 million in credit facilities from SVB and Goldman Sachs.
• Benjamin Elbaz, co-founder of Clearing, a banking solution tailored for short-term rental operators, said: “The fall of SVB is showing everyone how fast an institution with $200+ billion in assets can fall but also how quickly regulators are addressing the situation. I’m confident that SVB will be back and businesses will start diversifying their exposure to banks.”
• UK-based members-only, four- and five-star travel deals website, Secret Escapes [$74.5 million raised to date] has also had exposure to Silicon Valley Bank.
• Plum Guide CEO Doron Meyassed said that The Bank of England, Jeremy Hunt [UK Chancellor of the Exchequer] and the team at HM Treasury had done an “impressive” job in completing the sale of Silicon Valley Bank in the UK.
• RedAwning CEO Tim Choate said that, while his company did not have any accounts at Silicon Valley Bank, he “recognised the importance of this institution to the tech ecosystem and the significant role it has played in supporting startups and other companies over the years, including my own first startup company in the 90s”.
This breaking story will continue to be updated with more reactions as the news develops.
