The Silicon Valley Bank collapsed on March 10 after it failed to drum up fresh capital.
Its fall became the second biggest bank collapse in U.S. history, with numerous businesses storing their money within the bank.
These include Airbnb, Tesla, and Uber. Yet, it also impacted some of the biggest tech providers in the CX space.
Indeed, Zoom, Twilio, and Snowflake are all customers of Silicon Valley Bank – alongside many other prominent providers that touch the market.
Atlassian, Box, DocuSign, Dropbox, GitHub, Nutanix, Slack, and SurveyMonkey are all other notable examples.
On Friday, the collapse fuelled fears that these brands wouldn’t be able to pay workers.
Thankfully, U.S. regulators stepped in with emergency measures, which included seizing another bank – Signature Bank – only three days later.
In doing so, federal officials announced that customers who deposited money would be made whole.
Moreover, they will have access to their bank account as of Monday, which will allow these businesses to pay their teams as usual.
Funds will come from a special assessment on banks, not taxpayers.
As such, the tech space can breathe a sigh of relief. Yet, it raises important questions regarding the tech industry’s short- and long-term stability.
What Happened at Silicon Valley Bank?
During the pandemic, the number of deposits paid into Silicon Valley Bank tripled. The bank turned some of those into loans, but it also invested some into securities – as banks often do. These are generally considered “safe investments.”
Yet, at the bank, issues soon began to bubble under the surface as the federal reserve raised its rates. Those “safe investments” soon started to lose their value when this happened.
Meanwhile, customers began taking out their deposits much faster than the bank had anticipated.
As a result, Silicon Valley Bank had to cash in some of those investments, recouping far less than they had initially invested.
Then, on Wednesday, March 8, the bank announced it needed to raise fresh capital.
Ensue investor panic.
Indeed, many sold off their stock, with customers trying to withdraw $42BN in deposits the next day.
By Friday morning, regulators stepped in, took decisive action, and safeguarded all the deposits.
How May This News Impact the Tech Community?
The overarching concern is the broader economic effects of the collapse. Could this panic have a knock-on effect to other parts of the banking system?
Already, Signature Bank was seized this weekend – making it the third largest bank failure in U.S. history – and First Republic revealed that it had received extra money from the federal reserve.
While the U.S. government hopes to stunt this “contagion effect”, there is significant concern that the investor panic is not over. If it isn’t, millions more paychecks may be on the line.
Moreover, fears live on that the collapse will create a rift between Wall Street, the tech community, and Silicon Valley.
If so, the funding available for tech start-ups may dry up. After all, Silicon Valley is an essential funding mechanism for such businesses, supporting them on their journeys.
There is also a bigger question here about how banks use the capital invested by start-ups, which will bring more scrutiny to this arena.
Yet, any move that makes it even more difficult for start-ups to receive funding from a private equity community or angel investor is likely bad for the tech space in the long term.
So, while the widespread press fixating on the issue is positive, ultimately, Silicon Valley Bank and any other part of the banking system collapsing is terrible news for the tech community, the U.S., and the rest of the world.
