To say this week has been a whirlwind for the world of startups – and banking on the whole – would be an understatement.
Thankfully, we’ve come a long way since the initial news surrounding Silicon Valley Bank (SVB).
With the Federal Deposit Insurance Corporation transferring all SVB investments to a new bridge bank to protect them, fears of the worst have been assuaged.
That said, SVB was such a fixture in the world of startups and startup funding that this will undoubtedly carry substantial ripple effects.
After all, about half of all venture-backed technology and life-science startups banked with SVB.
So, while these companies are no longer screaming for a life preserver, wondering if they’re going to be able to make their next payroll, there still remain more questions than answers surrounding this whole fiasco.
For starters, there will inevitably be changes to the places startups choose to hold their money.
To mitigate the risk of a SVB-like bank-run situation in the future, these companies might opt to bank with larger, more established institutions – think JPMorgan Chase or Bank of America – rather than a smaller, more regional bank.
However, perhaps more influential than the places these startups hold their money will be the way they go about generating it.
One of the most commonly used practices by SVB was venture debt financing – something we wrote about back in September 2022. The bank had more than $14 billion worth of venture debt listed as assets.
The failure of SVB and the prominence of this strategy in its holdings strikes a substantial blow to the viability of the tactic for lenders. In turn, it potentially dries up an avenue of capital that had been relatively healthier during this economic downturn.
This problem for startups is similarly an opportunity for investors, however.
While venture financing was a viable option for startups, it removed those startups from the platter for investors.
Now in need of alternatives, some of those startups could turn to equity crowdfunding for their next capital raise – putting them squarely in your view.
Meanwhile, expectations are that SVB’s collapse could force the Fed to stop hiking interest rates, and this too could loosen the constraints on investors.
All things considered, in the same way that FTX’s downfall could have helped remove threats from the future of crypto, the same could be said about SVB on the world or startups.
And while there is still work to be done to reach that ultimate point, the time between now and then should be replete with investment opportunities.
Let’s make the most of it.
The A+E Network Deal Research Team