As of late Thursday night and Friday morning, the fallout from the US Silicon Valley Bank shutdown had reached shores in the UK and Europe. Yesterday afternoon, the Bank of England sought a court order placing Silicon Valley Bank UK Limited, the UK arm of a US institution, into bankruptcy proceedings.
BoE said in a statement: During that time, the company will stop accepting payments and deposits. SVB UK has confirmed that it will be bankrupt from this Sunday evening (tomorrow).
Industry sources estimate the move could affect 30% of UK tech start-ups, with 10% likely to get into trouble.
As of today, TechCrunch reports that an influential group of UK entrepreneurs and investors, backed by industry body Coadec, will make hasty statements to HM Treasury this weekend about the impact of SVB UK’s closure. I understand that there are
Additionally, the VC group issued the following statement: It plays a pivotal role in supporting and financing UK start-ups. Should SVP-UK be acquired and properly capitalized, we will strongly support and encourage portfolio companies to resume his banking relationship with SVP-UK. “
Joint Statement of UK Investors on SVB-UK Closure
The UK Prime Minister’s official residence, 10 Downing Street, has been working over the weekend to assess its impact on the tech industry, it turns out.
Separately, about 210 (and countless) UK Tech CEOs and founders (who employ an estimated 10,000 people) have written to the Prime Minister on the issue.
And in breaking news, Sky News reported that the Bank of London (TBOL), a clearing bank, is considering a bid to bail out SVB UK.
The U.S. bank failures came after they tried to raise $2.25 billion to offset losses from selling (mainly) U.S. Treasuries, leading to a 60% stock market crash that left customers and investors scrambled to empty their accounts en masse. .
By Friday morning, there was no apparent threat to British operations from the fallout originating in the United States. SVB UK was legally and operationally independent from the US division. (SVB UK, which he obtained a UK banking license in 2012, will become an independent UK bank in August 2022 with 700 full-time employees).
Additionally, after the 2008 financial crisis, all UK banks were required by law to separate their core retail banking services from their investment and international banking activities, known as ‘ring fencing’.
However, on Friday morning, the Financial Times reported that the SVB UK had requested £1.8bn of liquidity from the BoE. The BoE can provide emergency funds to banks through the BoE’s Discount Window feature, as long as it has sufficient collateral.
Also on Friday, SVB UK CEO Erin Platts held a Zoom conference attended by hundreds of UK investors and founders to say UK bank deposits are separate from US entities. said.
But Platt’s appeals didn’t prevent panic from spreading among British VCs and tech founders about what happened in the US.
The rumor spread like wildfire across tech WhatsApp groups in the UK as SVB UK account holders moved to withdraw cash from Thursday night onwards following the news in the US.
Just hours after Pratt’s call, the BoE moved to shut down the bank.
Some investors TechCrunch spoke to said they told portfolio companies to “diversify” the number of bank accounts they use in their businesses, but by Friday afternoon, the majority had simply SVB. England, which is revealed to have only told companies to “get out” from.
Hussein Kanji, co-founder of Hoxton Ventures, which has raised a total of $355 million across three funds, tweeted that he confirmed that he advised portfolio companies to move funds from SVB. Echoing a point made by VC Mark Suster about how panic among VCs fueled his SVB crisis, he in the US (and as a possible reference to the impact of the Streisand effect) , Kanji murmured: “Law firms and other VCs have caused panic. There has never been a crisis before this.”
Mark Tluszcz, CEO of Mangrove Capital Partners in Luxembourg, Friday afternoon, raising a total of $819.2 million across five funds murmured: “If you’re not advising your company to cash out, you’re not doing your job as a director or as a shareholder. I can’t…”
Under UK bankruptcy law, depositors are entitled to compensation of up to £85,000 ($102,000) for lost deposits. But of course there are hundreds of millions of pounds held on his SVB UK balance sheet, from UK founders and investors. Additionally, SVB UK is commonly used as a payroll facility for many startups, TechCrunch reports on US startups.
startup fallout
This situation could have a huge impact on the UK startup industry.
Matthew Clifford, co-founder of Entrepreneur First murmured “300 UK start-ups could struggle to pay salaries next week”
On Friday, TechCrunch understands that several European VC firms told LPs not to send money via SVB UK.
And in the last 24 hours, the UK Treasury has asked for information about the approximate amount of SVB UK deposits, how much cash they burn and whether they are SVB UK only or have access to other UK banks. , sent a memo to be distributed to tech companies. Facility.
As panic (no other way to describe it) spreads across the UK and European tech startup community, TechCrunch understands that some startups still have millions of pounds locked in SVB UK doing. By Friday, many realized they could only withdraw part of their money from their banks before the BoE shut down facilities. It didn’t help.
TechCrunch monitors conversations among UK tech entrepreneurs, but we face the irony that many of them are now in WhatsApp groups, some of which are funded by SVB UK. successfully withdrawn, escalating bank runs. .
Some observers have not lost their symbiotic and perhaps too close relationship with the tech ecosystem that SVB UK represents.
One entrepreneur I spoke to didn’t mince their words:
“No way. Yesterday some founders said, ‘Oh my God, I have £900,000 in the bank.’ And the thing is, SVB stipulates that if he has a venture debt loan, he must primarily bank with SVB. It’s like the mafia, like a protective racket. “
flow from here
The BoE could take over and appoint a liquidator, but will likely try to find a buyer for SVB UK first. And if all goes well the buyer will move quickly but it won’t happen overnight as due diligence will need to be done the problem is if the liquidator or the bank wants his SVB UK assets It’s about how you trade.
The BoE, on the other hand, may be sensitive to both legal obligations around insured deposits and the reality of having cash available to keep the business going. UK administrators and liquidators have the power to keep SVB UK traded if they believe the trade will preserve or increase the value of their assets.
A well-placed source told TechCrunch: End the sales process quickly. “
political influence
Opposition MPs already weigh in with Shadow Prime Minister Rachel Reeves comment on twitter:
“This is a real concern for many businesses across our country, including start-ups. need to manage the risk of
and Labor MP Darren Jones Tweet: “The government may decide it’s just a free market if a small US banking crisis leaves UK businesses failing and a surplus of tech workers.” may seriously consider itself to be a technological superpower.”
high stakes
Many UK startups are currently in a precarious position, with their bank accounts hanging in the air, as many VCs encourage them to open SVB UK bank accounts to receive venture-backed funding. It is no longer accessible. If the BoE chooses to let his SVB UK fail, it could create a huge, long-term funding vacuum for years to come.
Such an announcement at such a crucial time for the Conservative-led UK government seeking to reclaim the UK’s status as a European tech giant following Brexit and the loss of access to the EU’s Horizon 2030 programme. Nothing would have happened. The recently announced Ministry of Science, Innovation and Technology may not be enough if his 30% of UK tech start-ups are wiped out.
