Watch out for greater scrutiny of details such as how portfolio companies would cover payroll in a crisis
Watch out for greater scrutiny of details such as how portfolio companies would cover payroll in a crisis
Five days of worry, and then some relief for many early-stage companies and VCs – even if not yet for many of the 8,500 employees at Silicon Valley Bank (SVB).
On Sunday, the US Treasury, Federal Reserve, and Federal Deposit Insurance Corporation reassured SVB depositors in the US that they’d be able to access all their money today, regardless of the $250,000 per-depositor regulatory guarantee. The Financial Times reported that any shortfall will be funded by a levy on the rest of the banking system, not the taxpayer.
On Monday, the Bank of England announced the sale of SVB UK to HSBC, which will take on the £5.5bn loan book and £6.7bn deposits.
The US and UK governments aimed to prevent a wider banking crisis and reassure financial markets. The statement by the US authorities said: ‘today's actions demonstrate our commitment to take the necessary steps to ensure that depositors' savings remain safe'. UK finance minister Jeremy Hunt tweeted: ‘I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise.’
Successful lobbying by industry bodies and work with governments and banks have been crucial. In the US, this included major VC firms and the NVCA, and in the UK, Coadec, Tech London Advocates, and the BVCA. Governmental support for start-ups and VCs globally includes R&D funding, fund finance, procurement, direct grants, and substantial tax breaks for founders and investors.
The wake from the SVB crisis is likely to prompt more discussion about banking regulation, as well as greater scrutiny of fund managers and portfolio companies. For instance, LPs may well ask GPs for further clarity about how portfolio companies would cover payroll in the event of their bank accounts being frozen. After all, according to media reports, 80% of VC-backed tech companies based in Seattle, and some 50% nationally, banked with SVB.
The Oscars were awarded on Sunday, but the only prize for many businesses is access to their own cash.
Shaun Beaney is Editor of Preqin First Close, the essential newsletter for the global alternatives market. It’s quick, easy, and free to subscribe here.