As of Thursday night and Friday morning, the fallout from Silicon Valley Bank’s closure in the US had reached UK and European shores. Yesterday afternoon, the Bank of England applied for an injunction to place Silicon Valley Bank UK Limited, the UK arm of the US institution, in insolvency proceedings.
In a statement, the BoE said: “SVB UK has a limited presence in the UK and does not have critical functions supporting the financial system. In the meantime, the company will stop making payments or accepting deposits.” SVB UK confirmed that it would enter bankruptcy as of this Sunday night (tomorrow).
The move could affect up to 30% of UK tech startups, with a potential 10% in trouble, industry sources estimate.
As of today, TechCrunch understands that an influential group of UK businessmen and investors, with the help of industry body Coadec, are now making hasty representations this weekend to HM Treasury about the implications of SVB’s closure. UK.
Additionally, a group of venture capitalists issued the following statement, which reads: “SVB-UK is a trusted and valued partner to the entire innovation ecosystem that powers founders and the venture capital industry. It plays a key role in supporting and financing UK start-ups. Should SVP-UK be purchased and appropriately capitalised, we would strongly support and encourage our portfolio companies to resume banking relationships with them.”
The UK Prime Minister’s office, 10 Downing Street, is understood to be working over the weekend to assess the impact on its tech industry.
Separately, some 210 (and counting) UK tech CEOs and founders (employing around 10,000 people), have written to the Chancellor on the subject.
And in a breaking development, Sky News reported that The Bank of London (TBOL) (a clearing bank) is allegedly seeking a rescue offer for SVB UK.
The collapse of the US bank came after it tried to raise $2.25bn to offset losses from the sale of (mostly) US government bonds, leading to a 60% collapse in the stock price, with customers and investors rushing in droves to empty their accounts. .
As of Friday morning, there was no obvious threat to the UK operation from consequences occurring in the US. SVB UK was legally and operationally a separate entity from the US arm. (SVB UK obtained a UK banking license in 2012, but became an independent UK bank in August 2022 and has 700 full-time staff.)
In addition, after the 2008 financial crisis, all UK banks were required by law to separate core retail banking services from their international and investment banking activities in what is known as ‘cap’.
However, on Friday morning, the Financial Times reported that SVB UK had sought £1.8bn of liquidity from the BoE, which can provide emergency funds to a bank, provided it has adequate collateral, through the BoE discount.
Also on Friday, SVB UK chief executive Erin Platts held a Zoom call with hundreds of UK investors and founders in attendance, saying the UK bank’s deposits were separate from the US entity.
However, Platt’s pleas did not stop panic over events in the US from spreading among UK venture capitalists and tech founders.
Word spread like wildfire on UK tech WhatsApp groups as SVB UK account holders moved to withdraw their cash from Thursday night, following the news in the US. USA
Just hours after Platt’s call, the BoE stepped in to shut down the bank’s operations.
While some investors TechCrunch spoke to said they had told their portfolio companies to “diversify” the number of bank accounts used by their businesses, it became clear Friday afternoon that the vast majority had simply told the companies that simply “get out” of SVB. UNITED KINGDOM.
Hussein Kanji, co-founder of Hoxton Ventures (which has raised a total of $355 million across three funds) tweeted confirmation that they had advised portfolio companies to pull funds out of SVB “because it’s a run on the bank.” In an echo of points made by US VC Mark Suster about how panic among VCs had fueled the SVB crisis (and in a possible reference to the effect of the Streisand Effect), Kanji tweeted: “Law firms and other venture capitalists caused the panic IMHO. There was no crisis before this one.”
On Friday afternoon, Mark Tluszcz, Managing Director of Mangrove Capital Partners in Luxembourg (which has raised a total of $819.2 million across five funds) tweeted: “If you are not advising your companies to get the cash, then you are not doing your job as a Board member or as a shareholder. Daily life in startups is risky enough, don’t gamble with your lifeline…”
Under UK insolvency law, depositors are eligible for up to £85,000 ($102,000) of compensation for lost deposits. But of course hundreds of millions of pounds are held on SVB UK’s balance sheet from UK founders and investors. Also, SVB UK is commonly used as a payroll facility by many startups, as TechCrunch in the US has reported regarding startups there.
FAULTS TO START
The situation could have a huge impact on the UK start-up industry.
Matthew Clifford, co-founder of Entrepreneur First, tweeted that “there could be 300 UK startups struggling to meet payroll next week”.
On Friday, TechCrunch understands that several venture capital firms in Europe told LPs not to send money through SVB UK.
And in the last 24 hours, Her Majesty’s Treasury sent out a note to be distributed to tech companies requesting information about the approximate amount on deposit with SVB UK, their cash consumption and whether they only have access to SVB UK or have access to to other UK banks. facilities.
As panic (there’s no other way to describe it) spread through the UK and European tech startup community, TechCrunch understands that several startups still have millions of pounds locked up at SVB UK. By Friday, many found that they could only get some of their money out of the bank before the BoE shut down the facility. And Silicon Valley Bank’s famously outdated and clunky online banking platform didn’t help.
TechCrunch is monitoring conversations among UK tech entrepreneurs, many of whom now face the irony of being in WhatsApp groups where some entrepreneurs managed to get their money out of SVB UK, fueling the bank run, while others slower to move they did not. .
The symbiotic, and perhaps too close, relationship with the tech ecosystem that SVB UK represented has not gone unnoticed by some observers.
One businessman I spoke to did not mince words:
“He’s totally screwed. Yesterday, some founders were saying, ‘Fuck, we’ve got £900,000 in the bank.’ And the thing is, SVB makes it mandatory that you should mainly bank with them if you have a risky debt loan. It’s like a mafia, like a protection scam.”
THE PROCESS FROM HERE
The BoE takes over from here and can appoint a liquidator, but will most likely try to find a buyer for SVB UK first. And if all goes well, the buyer will move quickly, but you’ll need to do your due diligence, so that doesn’t happen overnight. The question then becomes, how do the trustee or the bank deal in the assets of SVB UK?
Meanwhile, the BoE is likely to be sensitive both to its legal obligations on insured deposits and to the reality of making cash available to keep businesses going. Administrators and liquidators in the UK have the power to maintain the SVB UK trade, if they believe that the trade preserves or increases the value of an asset.
A well-placed source told TechCrunch: “I can’t believe someone at the BoE who is appointed in this situation to oversee matters sees the benefit of keeping SVB UK’s doors closed because all it does is further destroy trust.” … Let’s hope that the sale process concludes quickly.”
Opposition MPs are already assessing, with Shadow Chancellor Rachel Reeves commenting on twitter:
“This is going to be really concerning for a lot of businesses, including startups, across our country. The Chancellor must urgently assess the scale of risks to UK businesses posed by the collapse of SVB, and he must work with businesses to manage those risks.”
and Labor MP Darren Jones tweeting: “The government could decide that a minor banking crisis in the US, resulting in British companies going bankrupt and tech workers laid off, is just the free market. Or the prime minister could be serious about Britain being a scientific and technological superpower.”
Encouraged by many venture capitalists to take out SVB UK bank accounts to receive their venture-backed funding, many UK startups now find themselves in a precarious position, their bank accounts now in limbo and inaccessible. If the BoE decides to let SVB UK fail, it could create a huge long-term funding gap for years to come.
The events could not have come at a more crucial time for the Conservative-led UK government as it has sought to reclaim the UK’s status as a European tech giant in the wake of Brexit and the loss of access to software. EU horizon 2030. A recently announced Department for Science, Innovation and Technology may not be enough if 30% of UK tech startups disappear.