Live by the sword, die by the sword how the Silicon Valley Bank went bankrupt

As chief of the three starting-up companies in the health sector in 3 decades, Bill Hunter took on many risks in his career. But that his bank would go bankrupt, it had never been part of his plans.

While Silicon Valley Bank (SVB) was struggling to collect capital or find a buyer last week, Hunter was on a flight from Las Vegas to Vancouver, Canada. By the time he landed three hours later, the SVB was closed and taken over by American regulators, following what was described as the first Runbank encouraged by Twitter.

The so-called '%bank run) is the term used to describe extreme cases when, due to loss of confidence or various speculation, a large number of clients look to a bank to withdraw their money to the mass, thus leading to its collapse.

SVB's Kolapsy, the biggest failure of a US bank since the 2008 financial crisis, has caused shock throughout the technology sector, for which SVB has been taking care of for more than four decades.

While the US federal government has intervened to ensure that its clients will have access to their full deposits, entrepreneurs worry that the bank's collapse will leave behind a huge vacuum and that the money for financing their enterprises could dry up.

Founded in 1983, SVB had positioned itself as the main lender for starting-up businesses in the United States, considered very dangerous by the most traditional banks. Since last year, she did business with nearly half of all the US-backed technology and life science companies.

These guys focused specifically on small and developing companies, and they were the heavy burden in that space,” Hunter told Euronews Net.

There are even little fish here and there, but they had the widest stretch. So this is an extremely strong blow and it will affect for a while”.

A bankW Unique to her type

The life and health care industry relied heavily on SVB, with about 12 percent of the bank's $173 billion deposit (1 billion euros) belonging to companies in that sector.

Nine in 10 initial businesses (or start-up) fail within 10 years, and in particular pharmaceutical and health technology is a high-risk business by nature. So when the founders wander out looking for investors to trust and money in the initial steps of their business, things can become quite complex.

In one of his previous start-up-type businesses, a pharmaceutical company specialising in Switzerland, Hunter said he had trouble opening even a mere corporate bank account.

Most banks don't want your money, even a good amount of money. With $25-30m [23-28m euros], you will think: no problem opening a bank account. You'd be surprised”, he said.

You're not making money when you start, so you're constantly getting smaller, you're not adding. So they say: You know what? We just don't need this mess. ”

This is where SVB made a real change in the game; offering new entrepreneurs a bank account and valuable support to start, hire a team, create a salary list and dream away.

The SVB loaned to these founders, including cases where their companies did not yet have a positive monetary influx and helped them increase capital at first.

“They were a kind of central bank linking entrepreneurial capitalists with entrepreneurs. That's where you want to go. If you are trying to raise money and you want to go to a conference and meet 100 investors, not five investors, this is where you should go”, Hunter said.

Funding Gap

The irony with the decline of the most beloved technology bank is that it was fed mainly by technology itself from the digital bank that made it much easier to transfer money to the spread of panic in social media and private chat groups.

SVB clients attracted $442 billion (39 billion euros) in a single day last week, leaving the bank at nearly $1 billion ($9m) in a negative cash balance, according to a regulatory file.

Many entrepreneurs said the bank battles posed an existential threat to their business -- the one they had worked so hard to build -- and they were terrified of the idea that they were no longer able to pay staff and their bills.

I was shocked. My sister's bank was SVB, it had about $2m ($1.9m euros) there. She was very worried, I helped her open another bank account over the weekend, “tha Ke Cheng, founder and president of HistoWiz, a biotechnic company that automates processing and digitalisation of tissue samples for drugs and the academy.

Since her company's deposits were largely safe outside SVB, Cheng went to LinkedIn to offer her help to start-up businesses affected in her area, Miami.

She explained that at the peak of the COVID-19 pandemic, the extraordinary programme of protection of the administration's salary Trump had saved her company, which became profitable, and now it was “koha to restore the local community and preserve innovation in the American economy”.

Hunter, whose company Canary Medical had about $5m (46m euros) of cash available at SVB, was obviously relieved when American regulators announced that all deposits in SVB would be guaranteed. But he's worried about seeing a valued partner fall.

We have access to our capital and this is fantastic. But, you know, we didn't just do business with them. We're working on different M&A agreements, and they were offering us these services as well, “he said.

So money is one thing, but services and other things will be lacking if there is no way to keep them”.

Cheng said he hoped the US government could somehow encourage these local and smaller friendly banks for starting-ups to continue”, because she was very concerned about the prospect of early capital financing entrepreneurs at the start-ups of health technology this year.

I think QVs will be very careful with writing checks now. Because of increased interest rates and the consequences of crypto, I'm sure people are very concerned about investing money in startup,” she said.

“High profit requires high risk”

For now, it is unclear whether any institution can or can fill the void left by SVB when it comes to financing original businesses.

There are other banks that do these services, don't get me wrong. But this was the 800-pound gorilla of banks that did this, “said Hunter. So, I'm sure over time, one of the other companies will show up to take that space. But it will take time. It won't be for one or two years”.

A partner in a rival European entrepreneurial debt provider told Euronews Next that SVB had done <x0) a scary job to serve the technology and health care ecosystem”, including Europe, where it has been active for about 15 years.

The “is certainly very sad when such a scale player disappears. Of course, this leaves a funding vacuum, “said the partner, who sought not to be identified because his company was co-operating and competing with SVB on the continent.

He welcomed the British government's quick intervention to arrange an agreement for HSBC to take over SVB's wing in the United Kingdom in an effort to protect the country's technological sector from a possible crisis.

I think that on both sides of the Atlantic, there is a sense that the technological and health care ecosystem is essential to the growth economy and fundamental to the survival of the economy in general,” said the partner.

They had to do everything they could to ensure that the ecosystem survived and was not affected by the internal problems of a bank. But it remains to be seen how finance will continue to secure”.

Live by the Sword, Die by the Sword

In a way, collapse can put the U.S. technology sector more at the same level as the technology sector in Europe, which experts say has no real equivalent to SVB either on scale or on specialisation.

In the EU, banks of that size are usually more diverse and more strictly regulated than in the US, and often there is an internal prejudice as well, with German companies, like Deutsche Bank-type banks.

“The benefits of the European and Canadian system are that capital is more widely distributed and risk taking is the most prudent. The disadvantage of this is that the high reward requires high risk, “said Hunter.

The American have always embraced danger and supported the advantage. And no place on Earth for the last 30 years was more visible than Silicon Valley, right? So, I think it's a bit like that saying “live by the sword, die of sword”.

We [in Canada and Europe] have a more careful approach, and our companies tend to emerge more slowly and not climb heights so quickly. Americans have a much more aggressive approach and they seem to incubate more successful companies,” he added.

But on both sides of the Atlantic, technology entrepreneurs and supporters have remained concerned by the recent event in the Silicon Valley.

The fall of SVB risks further frightening investors who had already become “slightly more pessimistic in terms of technology, initial or start-up businesses, as well as innovations in recent months, said Antonio Fatas, professor of economy at business school I NSEAD in France.

I think things will get harder. And funding will certainly become a little more cautious and conservative,” he said.