Silicon Valley Bank’s troubles began with a bad bet on long-term US bonds. Rising interest rates caused the value of these bonds to fall. When depositors began to worry about the bank’s balance sheet, they withdrew their money. High interest rates have become a challenge in the industry, ending the cheap loans that tech companies have grown accustomed to over the past decade and the shrinking funding available.
More … than 400 billion dollars in value has been wiped out of the European tech industry in 2022, while some companies, such as buy-it-now and pay-later provider Klarna, have seen their valuation fall by more than 85 percent. There has been little respite this year as layoffs continue at local startups as well as major European tech outposts. At the end of February, Google confirmed that it would cut 200 jobs in its Irish operations.
“The whole tech industry is hurting,” Warner says. “Generally in 2023 rounds take a lot longer; there is much less capital available.
In this context, it is difficult to know whether a major European bank is able or willing to fill the niche that the Silicon Valley Bank is leaving.
“Silicon Valley Bank is unique. There are not many banks that give loans to startups,” says Reinhilde Veugelers, senior researcher at the economic think tank Bruegel and professor at the Belgian university KU Leuven. “Generally, European banks are not good alternatives because they are far too risk averse.”
And even if a bank wanted to take the risk, it would likely struggle to replicate Silicon Valley Bank’s deep knowledge of the startup ecosystem, Veugelers adds. “You need more than deep pockets. You also need to be close enough to the broader venture capital market and have the ability to do your due diligence,” she says. “If the bank had that capability, it would have done it already.” HSBC did not immediately respond to WIRED’s request for comment.
Silicon Valley Bank was willing to take risks that other banks wouldn’t, says Frederik Schouboe, co-CEO and co-founder of Danish cloud company KeepIt.
KeepIt secured $22.5 million in debt financing, a way to raise debt, from the UK operations of Silicon Valley Bank last year. Although the bank opened an office in Copenhagen in 2019, the branch did not have a banking license. Traditional banks “are ultimately unusable if you run a deficit in a subscription business,” says Schouboe. “The regulatory environment is too strict for them to really help us.”
The way Silicon Valley Bank operated in Europe won its admirers. But now those folks fear that the company’s collapse will deter other banks from funding the technology in the same way. It was SBV’s banking practices that failed, not the startup industry’s funding business model, says Berthold Baurek-Karlic, founder and managing partner of Vienna-based investment firm Venionaire Capital. “What they did was they made big mistakes in risk management,” he adds. “If interest rates go up, it shouldn’t bankrupt your bank.”
Baurek-Karlic thinks European startups were benefiting from the riskier bets Silicon Valley Bank was taking, such as offering subprime debt deals. The US and UK said Silicon Valley Bank was not critical to the system, arguing there was limited risk of contagion to other banks. That might be true in banking, he says. “But for the tech ecosystem, it was system-critical.”
