Uncertainty, panic and urgency are three words I heard quite a bit on Monday morning.
I spoke to some of the UK-based tech companies that had accounts with Silicon Valley Bank, the bank that failed quite dramatically late last week.
The UK arm of this, with just over 3,000 business customers, has now been bailed out by HSBC, but as of this writing the online banking facility remains frozen.
SVB was mainly used by the tech sector and I know there have been rumors about how much sympathy UK taxpayers should have for the ‘tech brothers’ should the Treasury intervene.
The people I’ve chatted with don’t fit that description.
I asked a worker if she expected to be paid this month as her company only sent with SVB. It was still unclear how much operational cash — money needed by companies to pay bills and salaries — remained in limbo. “I hope so,” she said.
What everyone I spoke to had in common was that SVB was not just their main bank, but their only bank.
“At our next board meeting I want to talk about resource concentration,” said Melanie Hayes, managing partner of venture capitalist BGV, which also banks exclusively with SVB.
“We also need to look at the rest of the business and see where else we might have concentration risks.”
In short: don’t put all your eggs in one basket.
And may I add – choose large, robust, protected baskets that are more likely to be protected from failure by regulators and governments.
It might sound like a no-brainer, but when you’re a tech startup, it’s not as easy as it sounds.
“The big high street banks don’t support startups because we saw higher risk,” says Elin Haf Davies, founder of Aparito, a Wrexham-based medical technology startup focused on clinical trials.
Ms Haf Davies said SVB is popular in the med-tech sector, including both its competitors and its customers – many of whom are based in the US.
Aparito is still evaluating how much of an impact these customers’ banking problems will have on its own cash flow.
In addition to financial services, you should also consider the breadth of your customer base, she added.
“Try to have a large number of clients so you have a secure source of income,” she said, acknowledging that “it’s easier said than done.”
I often hear the perception that the big banks are less into start-up customers echoing.
“A lot of startups are with challenger banks because their account opening procedures are so much less complicated,” said Ms. Hayes.
“It’s difficult to open a bank account with a high street bank when you’re a start-up business.”
But when I ask why, no one is quite sure. “If I knew the answer to that…” Ms. Hayes laughs.
Chris Edson of Second Nature, a company that specializes in helping people with type 2 diabetes manage their lifestyles, said his company had been committed to Metro until recently, but decided to switch to SVB switch.
The firm had put some money into a fixed-term bond before news broke about the SVB, but there was still around £1million in the account.
“We were faced with a dilemma: ‘Do we withdraw our money and make the problem worse, or do we wait?’ I was in a WhatsApp group with other founders and the opinion was divided.”
In the end, Mr Edson decided to transfer funds back to the old Metro account on Friday morning and although the money appears to have left the SVB it has not yet arrived at its new destination.
But he’s confident things will be fine under HSBC’s ownership.
“I think every chief financial officer worked all weekend,” he said.
“Sunday seemed like a real black swan once in a generation moment for startups. It shook everyone in VC [venture capital] world to the core.”
One thing it has also done is unite the tech sector in an unusual moment of business collaboration.
“I’ve never received as many messages from founders or investors as I have in the last 48 hours,” said Mr. Edson.
Ms Hayes said she’s seen tech chiefs exchanging “handy things” like lists of banks willing to open accounts quickly and personal contacts who might be able to help.
They also coordinated a data collection exercise to determine the extent of the problem, in which quite sensitive company information was exchanged, such as: B. the level of risk of the companies and their cash flow requirements.
“We saw other people just sharing solidarity and support,” she said.
“It was nice to see people pulling together.”
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