Silicon Valley Bank’s disease has just begun.
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When Silicon Valley Bank collapsed on March 10, Gary Tan, president and CEO of startup incubator Y Combinator, called SVB failure. “An extinction-level event for startups” that will “reset startups and innovation for 10 years or more.” People have been. Early To point outside How quickly small government cadres, the libertarian tech bros, have called for government intervention in the form of bailouts when their money is on the line.
Late yesterday, the US government announced that SVB depositors would regain access to all their money, thanks to the Federal Deposit Insurance Company providing funds from member banks. Yet the shock to the tech ecosystem and its elite can still bring a reckoning to many who think it has nothing to do with them.
SVB’s 40,000 customers are mostly tech companies — the bank has served nearly half of U.S. startups — but those tech companies are woven into the fabric of daily life across the U.S. and beyond. The strength of the West Coast tech industry means that much of digital life is rarely more than a degree away from startup banking with SVB.
Bank customers may now be getting their money back, but the services provided by SVB have ended. The void and last week’s shock could force startups and their investors to make drastic changes in how they manage their money and businesses, with implications far beyond Silicon Valley.
Immediately, workers at many of the startups relying on SVB are far from the bank’s home turf. “These companies and people are not just in Silicon Valley,” says Sarah Kunst, managing director of Cleo Capital, a San Francisco firm that invests in early-stage startups.
Y Combinator cofounder Paul Graham said yesterday that the incubator’s companies bank with SVB. More than a quarter of a million. Employers, about one-third of whom are based outside of California. If he and other SVB customers face a cash crunch or a cut in expansion plans, rent payments in many parts of the world could be delayed and staff would stop for coffee and lunch at the corner deli. Can’t buy. Wary of the future, businesses may hold back on new hires, and the staff that remain may respond by cutting local spending or delaying home purchases or renovations.
The second- and third-order effects of startups running into financial trouble or simply slowing down can be more damaging. “When you say: ‘Oh, I don’t care about Silicon Valley’, yes, that may sound right. But the reality is that very few of us are Luddites,” says Kunst. “Imagine you wake up and go to unlock your door, and because it’s a tech company banking with SVB that can’t take anymore, your app isn’t working and you’re Struggling to unlock the door.” Perhaps you’ve tried a rideshare company or wanted to ride an electric scooter for pay, but can’t because their payment system is provided by an SVB client that no longer works.
Some of the people affected by the bank collapse will be in a much more precarious position than the few investors and tech insiders who tweeted during the crisis. California Legislator Scott Weiner, a member of the state Senate; Tweeted Over the weekend, an unnamed San Francisco-based payroll processing company whose customers employ “tens of thousands” of workers banked with SVB. Those workers make an average salary of about $48,000, he said, and work in businesses including pizza places, taco joints and bike shops. “It’s not just a tech thing,” he said.
The demise of SVB may be a painful lesson in how the sector labeled “tech” is much broader than that. “Every tech company is a typical business with suppliers who deliver things,” says Dom Hallas, executive director of the Coalition for a Digital Economy, which represents startups in the UK. There are not those who have names, those who have none. Voices in them