Silicon Valley Bank depositor bailout: New Zealand startups spared a ‘venture capital ice age’ - but lose a key ally

The local startup scene is breathing a sigh of relief in the wake of a series of US Government measures to help those caught up in the Silicon Valley Bank collapse - including a Federal Deposit Insurance scheme that has been widened to guarantee all accounts with the failed bank, including those above the US$250,000 threshold. (Read SVB’s email to clients at the foot of this story).

“The announcement has prevented a venture capital ice age,” Icehouse Ventures CEO Robbie Paul told the Herald.

“Most alternative responses would have wiped out a generation of tech companies and New Zealand would not have been spared.”

The relief is tempered, however.

“Like many, we slept easier last night after the FDIC’s [Federal Deposit Insurance Corp] announcement,” Dexibit CEO Angie Judge said.

“SVB will leave a hole. They were the go-to bank recommended by VCs and part of the Stripe Atlas programme that allowed international companies to set up bank accounts state-side. There was no other player like them and their loss will leave a lasting impact," says Angie Judge, CEO of the Auckland-based Dexibit. Photo / File

“But there’s still ongoing impact for Kiwi technology companies operating in the US,” said Judge, whose Auckland-based firm sells data analytics for museums and other visitor attractions worldwide.

“Some might see a delay in revenue if they have to stand up new bank accounts to receive customer payments. That’s hard from offshore, especially for products that integrate payments.”

Tech firms who sell to other tech companies might see late payments or reduced business-to-business spending, Judge said.

“And those raising capital will probably see more conservative venture firms at an already tight time, especially if markets become more volatile.”

Judge added, “Looking ahead, I’m sure everyone will be looking at their banking partners and diversification as a new standard for all, not just bigger companies.”

Dexibit was already following best-practice in that department. The US firm spread its cash over several banks, staying within the US$250,000 Federal Deposit Insurance limit for each. (On a larger scale, Rocket Lab did the same. The US$38m it held with SVB represented 7.9 per cent of its cash.)

“The announcement has prevented a venture capital ice age. Most alternative responses would have wiped out a generation of tech companies and New Zealand would not have been spared" - Icehouse Ventures' CEO Robbie Paul. Photo / Jason Oxenham

Then there’s a broader issue. SVB was unique in its enthusiasm for offering services to startups and VCs and being an “understanding lender” and deal facilitator for the sector. Its efforts included a push to gain NZ clientele through collaboration with NZ Trade and Enterprise, which hosted a “Cuppa and Croissant with Silicon Valley Bank” meetup in Auckland at the end of last year.

“Long term, SVB will leave a hole,” Judge said.

“It played an important role in making it easier for tech companies to do business in the US and the UK.

“They were the go-to bank recommended by VCs and part of the Stripe Atlas programme that allowed international companies to set up bank accounts state-side. There was no other player like them and their loss will leave a lasting impact.”

Movac general partner Mark Vivian said, “We had very little exposure via our portfolio companies. But the solution reached is transformational for the sector, compared to the alternative.”

Rocket Lab: ‘In progress’

As SVB imploded, Icehouse Ventures’ Paul told Markets with Madison that Kiwi-owned start-up companies, including a handful of its portfolio companies, likely had “in the order of NZ$100m” caught up in the collapse, with much of it in accounts above the US$250,000 threshold for Federal Deposit Insurance.

The US Treasury Federal Reservice and Federal Deposit Insurance Corp said in a joint statement yesterday that SVB depositors would regain access to funds on Monday morning US time. All deposits - including funds above the US$250,000 threshold - are now Government guaranteed.

The Fed also announced an emergency lending facility to shore up the US banking system and stop SVB from becoming a contagion. (At the same time, regulators shut a smaller bank, the 38-branch Signature Bank, which had been hobbled by a bad crypto bet).

With the Fed measures in the bag, SVB was able to sell its UK operation to HSBC, for a symbolic £1, and it put its SVB Securities and SVB Capital VC divisions up for sale.

The mechanics of deposit access are still being implemented. This morning, a spokeswoman for Rocket Lab said the process of regaining access to the US$38 million ($61.9m) the Kiwi-American firm holds with SVB is “in progress”.

Others who should regain access to the now-guaranteed SVB accounts include ASX-listed Xero (which had US$5m with the failed bank), and NZX-listed IkeGPS (US$3.2m) and NZX-listed Comvita’s US joint skincare venture Caravan Honey (US$2.5m).

The deposit guarantee, and the pending sale of SVB’s venture capital operation, seem to have gone a long way to clearing the skies.

Monday rout did not eventuate

Over the weekend, there were fears of a Wall Street rout.

And there was a sharp sell-off in regional bank stocks, led by First Republic, that was thumped by a 61 per cent fall. but the big national players also took some punishment (Citi was down 7.5 per cent, Bank of America was down 5.9 per cent, JPMorgan was down 1.8 per cent. The major Australian banks were down between 2.5 and 3.9 per cent in early ASX trading).

But overall, Monday trading was flat. The Nasdaq was up 0.45 per cent, the S&P 500 down 0.15 per cent and the Dow down 0.28 per cent. And early indicators pointed to downward pressure on interest rates as US Treasury yields fell by 62 basis points on Monday - the biggest single-day drop since 1987.

Image / Getty Creative

Although the venture capital and startup communities seem to have escaped the high interest rate and recession-induced VC “big chill” becoming an ice age, Icehouse’s Paul sees more conservative behaviour ahead.

“While it was a uniquely unfortunate series of events that led to SVB’s collapse, moving forward entrepreneurs and directors will be even more protective of hard-earned cash.”

POSTSCRIPT: SVB’s email to customers today

Dear Clients:

Silicon Valley Bank, N.A. is open and conducting business as usual. We are here to serve you. I recognise the past few days have been an extremely challenging time for our clients and our employees, and we are grateful for the support of the amazing community we serve. I have joined the company as CEO starting today.

Over the weekend, the FDIC transferred all deposits and substantially all assets of the former Silicon Valley Bank to a newly created, full-service FDIC-operated ‘bridge bank’ in an action designed to protect all depositors of Silicon Valley Bank. Depositors have full access to their money and new and existing deposits are protected. You can read more in the press release issued today.

A few immediate notes:

• All existing deposits are protected by the FDIC.
• All NEW deposits are also protected by the FDIC.
• All wire payments entered on March 9 or 10 that have not already been processed have since been cancelled. If you wish to consummate those transactions, you need to reinitiate them.
• We are conducting business as usual within the US and expect to resume cross-border transactions in the coming days.

We know many of you have questions and we appreciate your patience as our dedicated team works as quickly as possible to serve you. More information will be provided as soon as it is available.

I look forward to getting to know the clients of Silicon Valley Bank. I come to this role with humility. I also come to this role with experience in these kinds of situations. I was part of the new leadership team that joined Fannie Mae in the wake of the financial crisis in 2008-09, and I served as the CEO of Fannie Mae from 2012-18. I am very proud of the work we did there to restore the company to profitability and to stabilise the housing finance system in a period of unprecedented challenge.

I also come with experience in and an appreciation for the innovation economy. Until recently, I was the president of a Silicon Valley-based software company that provides technology to financial institutions to serve their consumer banking customers. I know how important Silicon Valley Bank has been and continues to be to the success of its clients and the innovation ecosystem.

We look to restore your confidence and support you and your companies at this time.

Thank you and best regards,

Tim Mayopoulos

CEO, Silicon Valley Bank, N.A.