Silicon Valley Bank collapse sparks UK tech startup 'panic'

Regulators in California have closed Silicon Valley Bank (SVB) after a liquidity crisis at the startup lender prompted panic withdrawals. The collapse, the biggest bank failure since the 2008 crisis, has sent shockwaves among UK startups that have accounts with SVB’s UK subsidiary.

Silicon Valley Bank UK has said it is still processing payments and funding loans for UK clients. SVB UK, which launched last September, is a separate entity from the US parent company.

In a statement, SVB UK said it is a “standalone independent UK regulated bank” and that funds are “ringfenced” from its US parent company and other subsidiaries.

That hasn’t prevented UK startups from withdrawing at least some of their funds from SVB UK. Multiple investors that spoke to UKTN said that founder WhatsApp groups are full of discussions about the extent to which they should diversify their cash away from SVB UK.

In a Zoom call with investors on Friday afternoon, Erin Platts, CEO of SVB UK, sought to provide reassurance and said the bank is “operating and doing the best we can to continue to support you all”.

Platts added on the call that she expects the SVB UK business to continue operating next week but was unable to share information about its financials.

Francesco Perticarari, a deep tech investor and general partner at Silicon Roundabout Ventures, told UKTN that there was “mass panic” in startup circles and that people are “actively moving funds out” of SVB UK. However, he added that he wasn’t “sure if [it’s] justified”.

He added that the sensible approach is for startups to be cautious and ensure they are diversified with one to two months’ runway in a separate account.

On Thursday the Nasdaq-listed US parent company lost more than 60% of its share value. The plunge was sparked by an announcement it would sell almost $2bn worth of stock to cover losses caused by a sell-off of its bond portfolio.

The crisis at SVB led US investors to advise startups to withdraw funds from the bank, causing a run on the bank after it was unable to meet all withdrawal requests. SVB has in the past said it provides accounts for half of US startups.

On Friday evening the US Federal Deposit Insurance Corporation (FDIC) said it had taken charge of deposits at SVB.

The crisis has rippled through the banking world, with Barclays, Lloyds, and HSBC all facing share price drops in the 3-5% range.

SVB was founded in 1983 and has been in the UK market since 2004. The London-headquartered subsidiary was created to reflect the major UK presence that the tech bank had held for over a decade.

It has since amassed a UK portfolio of 51 firms, including big-name startups such as Wise, Paddle, Wagestream, and Plum.