One hour and three minutes before Silicon Valley Bank blocked all withdrawals, Pat Phelan got the last of his company's money out. Phelan's cosmetic medicine startup, Sisu Clinic, kept the majority of its reserves with the California-based bank. When he saw whispers of its problems spreading across the internet, he joined the digital bank run that ultimately pushed Silicon Valley Bank to collapse.
“I just messaged our chief financial officer and said, ‘Get the money out,’” Phelan says, adding he had to wait all night for the funds to arrive in his Bank of Ireland account. “It was an incredibly worrying 26 hours.”
After a tense weekend, regulators in the UK and US have stepped in to protect depositors, averting the most dramatic potential consequences of the largest US bank failure since the 2008 financial crisis.
But many in Europe’s tech industry warn of a slower-burn crisis to come. The reason that Silicon Valley Bank was so popular was because it filled a role that no one else would. It was part bank, part networking community, part venture capital firm. In some countries it was a major investor. In Ireland, the bank had planned to invest more than $500 million in technology and life science startups by 2024. In the Netherlands, the bank was in discussions about how to finance more local companies. Europe’s tech sector was already struggling with funding shortfalls, mounting losses, and widespread job cuts. The loss of Silicon Valley Bank only deepens the gloom.
“What happened during the last few days is once again there was a recognition that, especially when it comes to bigger [investment] rounds … there are not that many real big funds that can play a major role,” says Rinke Zonneveld, the CEO of Invest NL, a government-backed investment firm in the Netherlands. “We are dependent on US money.”
Silicon Valley Bank was embedded in Europe’s tech sector via a series of affiliated businesses and offices. Its Danish office, which didn’t have a banking license, focused on networking. The German branch did not offer a deposit business. But at the heart of that system was the bank’s London-based subsidiary, established in 2012, which helped startups across the EU with funding, loans, and accounts. On Friday, the Bank of England declared that Silicon Valley Bank was set to enter insolvency, before that arm of the business was acquired in a last-minute £1 rescue deal by HSBC bank.
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But many of Silicon Valley Bank’s customers turned to the bank exactly because they felt that traditional lenders were not set up to cater to the technology industry’s specific demands.
The bank didn’t just enable tech companies with unusual financial structures to open accounts, says Check Warner, partner at London-based inclusive venture firm Ada Ventures. It also sponsored events and organizations trying to make the UK tech sector more diverse. “SVB was much more than just a bank,” she says. “I'd love it if a homegrown UK business was doing this role, but in the absence of that, Silicon Valley did it and did it really well.”
Silicon Valley Bank's struggles started with a bad bet on long-dated US bonds. Rising interest rates meant that the value of those bonds fell. As depositors started to worry about the bank's balance sheet, they pulled their money out. High interest rates have become a challenge across the industry, ending the cheap loans that tech companies got used to over the past decade and reducing available funding.
More than $400 billion in value was wiped from Europe’s tech industry in 2022, while some companies, like the buy-now, pay-later provider Klarna, watched their valuation plunge more than 85 percent. This year there’s been little reprieve, as layoffs continue within local startups as well as at Europe’s big tech outposts. At the end of February, Google confirmed it would cut 200 jobs from its business in Ireland.
“The whole tech industry is suffering,” Warner says. “Generally, in 2023 rounds are taking much longer; there's much less capital available.”
Against this backdrop it’s unclear whether any major European bank is able or willing to fill the niche that Silicon Valley Bank is leaving.
“Silicon Valley Bank is unique. There are not that many banks which provide startups loans,” says Reinhilde Veugelers, a senior fellow at economic think tank Bruegel and a professor at Belgian university KU Leuven. “Typically, European banks are not good alternatives, because they're way too risk-averse.”
And even if a bank wanted to take the risk, they'd likely struggle to replicate Silicon Valley Bank's deep knowledge of the startup ecosystem, Veugelers adds. “You need way more than deep pockets. You also need to be sufficiently close to the whole venture capital market and have the ability to do due diligence” she says. “If the bank had that capacity, it would have already been doing this.” HSBC did not immediately reply to WIRED’s request for comment.
Silicon Valley Bank was prepared to take risks that other banks wouldn't, says Frederik Schouboe, co-CEO and cofounder of the Danish cloud company KeepIt.
KeepIt secured a $22.5 million debt financing package—a way of raising money through borrowing—last year from Silicon Valley Bank’s UK business. Although the bank opened an office in Copenhagen in 2019, the branch did not have a banking license. Mainstream banks “are ultimately impossible to bank with if you are making a deficit in a subscription business,” Schouboe says. “The regulatory environment is too strict for them to actually help us.”
The way Silicon Valley Bank operated in Europe has earned its admirers. But now those people are worried the company’s collapse will warn other banks away from funding tech in the same way. It was SBV’s banking practices that failed, not the business model of funding the startup sector, says Berthold Baurek-Karlic, founder and managing partner of Vienna-based investment company Venionaire Capital. “What they did was they made big mistakes in risk management,” he adds. “If interest rates rise, this shouldn't make your bank go bust.”
Baurek-Karlic believes European startups were benefiting from the riskier bets that Silicon Valley Bank was taking, such as offering venture debt deals. The US and UK said Silicon Valley Bank is not system critical, 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.”