Silicon Valley Bank’s struggles began with a bad bet on long-dated US bonds. Rising interest rates caused the value of those bonds to fall. When depositors began to worry about the bank’s balance sheet, they withdrew their money. High interest rates have become a challenge across the industry, ending the cheap lending technology companies had become accustomed to over the past decade and reducing available funding.
By 2022, more than $400 billion in value will be wiped out of Europe’s technology industry, while some companies, such as buy-now, pay-later provider Klarna, have seen their valuation fall by more than 85 percent. There has been little delay this year as layoffs continue at local startups and Europe’s major tech outposts. At the end of February, Google confirmed it would cut 200 jobs from its operations in Ireland.
“The entire technology industry is suffering,” says Warner. “In general, rounds in 2023 will take much longer; there is much less capital available.”
Against this background, it is 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 aren’t that many banks that provide starter loans,” says Reinhilde Veugelers, senior fellow at the economic think tank Bruegel and professor at the Belgian university KU Leuven. “Usually European banks are not a good alternative, because they are much too risk averse.”
And even if a bank were willing to take the risk, they would likely struggle to replicate Silicon Valley Bank’s deep understanding of the startup ecosystem, Veugelers adds. “You need much more than deep pockets. You also need to be close enough to the entire venture capital market and be able to do due diligence,” she says. “If the bank had that capacity, it would have done this already.” HSBC did not immediately respond to WIRED’s request for comment.
Silicon Valley Bank was willing to take risks that other banks wouldn’t take, 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 by borrowing – from Silicon Valley Bank’s UK operations last year. Although the bank opened an office in Copenhagen in 2019, the branch did not have a banking license. Regular banks “are ultimately impossible to bank with if you run a shortfall in a subscription business,” says Schouboe. “The regulations are too strict to actually help us.”
The way Silicon Valley Bank operated in Europe has earned its admirers. But now those people fear that the company’s collapse will similarly alert other banks to technology financing. It was SBV’s banking practices that failed, not the business model of financing the startup sector, says Berthold Baurek-Karlic, founder and managing partner of Vienna-based investment firm Venionaire Capital. “What they did was they made big mistakes in risk management,” he adds. “If interest rates rise, your bank should not go bankrupt.”
Baurek-Karlic believes European startups benefited from the riskier bets Silicon Valley Bank took, such as offering venture debt deals. The US and UK said Silicon Valley Bank is not systemically critical, arguing there was limited risk of contagion from other banks. That may be true in banking, he says. “But for the tech ecosystem, it was system-critical.”