Silicon Valley Bank’s struggles began with a bad bet on long-term US bonds. An increase in interest rates means a decrease in the value of those bonds. When depositors began to worry about the bank’s balance sheet, they withdrew. High interest rates have become an industry-wide challenge, stop cheap loan that tech companies have grown accustomed to over the past decade and reduce existing funding.
More 400 billion USD value has been wiped out of Europe’s tech industry by 2022, while some companies, like buy-now, pay-later service provider Klarna, see their valuations tumble than 85 percent. There have been few amnesty this year, as layoffs continue in local startups as well as in major European tech outposts. At the end of February, Google confirmed it would cut 200 jobs from its Irish business.
“The entire tech industry is struggling,” Warner said. “In general, in 2023, rounds go on much longer; have much less capital.”
Against this backdrop, it is unclear if any of the major European banks are able or willing to fill the void left by the Silicon Valley Bank.
“Silicon Valley banking is unique. Reinhilde Veugelers, a senior fellow at the Bruegel economic research institute and a professor at the Belgian university KU Leuven, said not many banks offer loans to startups. “Usually, European banks are not a good alternative, because they are too risk averse.”
And even if a bank wants to take the risk, it will likely find it difficult to replicate the Silicon Valley Bank’s extensive knowledge of the startup ecosystem, Veugelers added. “You need more than just deep pockets. You also need to be close enough to the entire venture capital market and have due diligence capabilities,” she said. “If the bank had that ability, it would have done it already.” HSBC did not immediately respond to WIRED’s request for comment.
“Silicon Valley Bank is ready to take risks that other banks won’t,” said Frederik Schouboe, co-CEO and co-founder of 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 does not have a banking license. “Ultimately, mainstream banks can’t deal with a bank if you’re running a deficit in the subscription business,” says Schouboe. “The regulatory environment is too strict for them to really help us.”
The way Silicon Valley Bank operates in Europe has earned its admiration. But now those people worry that the company’s demise will warn other banks to steer clear of funding the technology in the same way. Berthold Baurek-Karlic, founder and managing partner of Vienna-based investment firm Venionaire Capital, said it was the SBV’s banking operations that failed, not the business model that financed the sector. startup sector. He added: “What they did was make a big mistake in risk management. “If interest rates go up, this won’t make your bank go bankrupt.”
Baurek-Karlic believes that European startups are benefiting from the riskier bets Silicon Valley Bank is making, such as offering risky debt deals. The US and UK said Silicon Valley Bank is not system critical, arguing that there is little risk of contagion to other banks. That may be true in the banking sector, he said. “But for the tech ecosystem, it’s very important to the system.”
