Silicon Valley Bank’s woes started with a bad bet on long-term U.S. bonds. Rising interest rates mean that the value of these bonds falls. As depositors became concerned about banks’ balance sheets, they withdrew their funds. High interest rates have become a challenge across the industry, ending the cheap loans tech companies have become accustomed to over the past decade and reducing available funding.
Over $400 billion has been wiped off the value of the European tech sector in 2022, while some companies, such as buy-now, pay-later provider Klarna, have seen their valuations plummet by more than 85%. There has been little respite this year, as layoffs continue at local startups as well as at large tech outposts in Europe. At the end of February, Google confirmed that it would cut 200 jobs from its operations in Ireland.
“The entire tech industry is suffering,” Warner said. “In general, the 2023 round will take longer; there will be much less funding available.”
Against this backdrop, it’s unclear whether any of the big European banks are able or willing to fill the void Silicon Valley banks are leaving.
“Silicon Valley Bank is unique. There aren’t many banks that offer startup loans.” Usually, European banks are not good choices because they are too risk-averse. ”
Even if banks are willing to take the risk, they may struggle to replicate SVB’s deep knowledge of the startup ecosystem, Veugelers added. “You need more than deep pockets. You need to be close enough to the entire venture capital market and have the ability to do due diligence,” she said. “If the bank had the capability, it would have done it a long time ago.” HSBC did not immediately respond to Wired’s request for comment.
Frederik Schouboe, co-CEO and co-founder of Danish cloud computing company KeepIt, said Silicon Valley Bank is ready to take risks that other banks are unwilling to take.
KeepIt secured a $22.5 million debt financing package last year from Silicon Valley Bank’s UK operations — a way to raise money by borrowing money. Although the bank opened an office in Copenhagen in 2019, the branch does not have a banking license. Mainstream banks “end up not being able to work with the banks if you’re losing money in the subscription business,” Schouboe said. “The regulatory environment is too restrictive for them to really help us.”
The way Silicon Valley Bank operates in Europe has won it admirers. But now those people worry that the company’s collapse will warn other banks not to fund technology in the same way. Berthold Baurek-Karlic, founder and managing partner of Vienna-based investment firm Venionaire Capital, said it was SBV’s banking business that failed, not its business model for funding start-ups. “What they did was err on the side of risk management,” he added. “If interest rates go up, that shouldn’t bankrupt your bank.”
According to Baurek-Karlic, European startups are benefiting from riskier investments by Silicon Valley banks, such as offering venture debt deals. The U.S. and U.K. say SVB is not a systemically critical bank and see limited risk of contagion to other banks. That may be true in banking, he said. “But for the technology ecosystem, it’s system critical.”
