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Late Thursday night and Friday morning, the fallout from the US Silicon Valley Bank shutdown had reached the shores of the UK and Europe. Yesterday afternoon, the Bank of England applied for an injunction to place Silicon Valley Bank UK Limited – the UK arm of the US institution – in insolvency proceedings.
In a statement, the BoE said: “SVB UK has a limited presence in the UK and no critical functions supporting the financial system. In the meantime, the company will stop making payments or accepting deposits.” SVB UK confirmed it would go bankrupt from Sunday evening (tomorrow).
The move could affect as many as 30% of UK tech startups, with potentially 10% in trouble, industry sources estimate.
As of today, TechCrunch understands that an influential group of UK entrepreneurs and investors, aided by industry association Coadec, are hurriedly protesting at HM Treasury this weekend over the implications of the closure of SVB UK.
In addition, a group of VCs released the following statement, which reads: “SVB-UK is a trusted and valued partner of the entire innovation ecosystem that powers founders and the venture capital industry. It plays a vital role in supporting and funding start-ups in the UK. In the event that SVP-UK were purchased and appropriately capitalised, we would strongly support and encourage our portfolio companies to resume their banking relationships with them.”
Clearly, the UK Prime Minister’s office, 10 Downing Street, is working over the weekend to assess the impact on the tech industry.
Separately, some 210 (and growing) CEOs and founders of British technology (employing an estimated 10,000 people) have written to the Chancellor about the matter.
And in a groundbreaking development, Sky News reported that The Bank of London (TBOL) (a clearing bank) is reportedly looking at a bailout bid for SVB UK.
The US bank’s collapse came after it attempted to raise $2.25 billion to offset losses on sales of (primarily) US Treasury bonds, leading to a 60% share price collapse, with customers and investors subsequently flocking raced to clear their accounts. .
Until Friday morning, there was no clear threat to the British operation from the fallout in the US. SVB UK was legally and operationally a separate entity from the US branch. (SVB UK was granted a UK banking license in 2012, but became a UK independent bank in August 2022 and has 700 full-time employees).
In addition, following the 2008 financial crisis, all UK banks were required by law to separate core retail banking services from their investment and international banking activities under what is known as “ring-fencing”.
However, on Friday morning the Financial Times reported that SVB UK had sought £1.8bn of liquidity from the BoE, which can provide emergency funding to a bank, as long as it has sufficient collateral, through the BoE’s discount window facility.
Also on Friday, Erin Platts, CEO of SVB UK, held a Zoom conversation with hundreds of UK investors and founders in attendance, saying that the UK bank’s deposits were segregated from the US entity.
However, Platt’s pleas failed to prevent panic over the events in the US from spreading among British VCs and tech founders.
The news spread like wildfire among UK tech WhatsApp groups, as SVB UK account holders started withdrawing funds from Thursday evening following the news in the US.
Just hours after Platt’s call, the BoE stepped in to shut down the bank’s operations.
While some investors TechCrunch spoke to said they had told their portfolio companies to “diversify” the number of bank accounts used by their companies, it was clear Friday afternoon that the vast majority had simply told companies to simply “get out” of SVB UK.
Hussein Kanji, co-founder of Hoxton Ventures (which has raised a total of $355 million across three funds) tweeted confirmation that they had advised portfolio companies to take money out of SVB “because it’s a bank run”. Echoing points by US VC Mark Suster about how panic among VCs had fueled the SVB crisis (and in a possible reference to the effect of the Streisand effect), Kanji said tweeted: “The law firms and other VCs caused the panic imho. There was no crisis before that.”
On Friday afternoon, Mark Tluszcz, CEO of Mangrove Capital Partners in Luxembourg (which raised a total of $819.2 million across five funds) tweeted: “If you don’t advise your companies to get the money out, then you’re not doing your job as a board member or as a shareholder. Daily life in startups is risky enough, don’t play with your lifeline…”
Under UK insolvency law, depositors are eligible for compensation of up to £85,000 ($102,000) for lost deposits. But of course there are hundreds of millions of pounds on SVB UK’s balance sheet from British founders and investors. In addition, SVB UK is often used as a payroll facility by many startups, as TechCrunch in the US has reported regarding startups there.
The situation could have a huge impact on the UK startup industry.
Matthew Clifford, co-founder of Entrepreneur First, tweeted that “there could be 300 UK startups next week struggling to meet payroll.”
On Friday, TechCrunch understands that several VC firms in Europe have told LPs not to send money through SVB UK.
And in the last 24 hours HM Treasury has circulated a note to distribute to tech companies asking for information on the estimated amount deposited at SVB UK, their cash burn and whether they are with SVB UK only or have access to other UK banks . facilities.
As the panic (there’s no other way to describe it) spread across the UK and European tech startup community, TechCrunch understands that several startups still have millions of pounds locked up in SVB UK. By Friday, many found they could only get some of their money out of the bank before the BoE closed the facility. And Silicon Valley Bank’s famously old-fashioned and clunky online banking platform didn’t help.
TechCrunch is monitoring the chatter among UK tech entrepreneurs, many of whom are now faced with the irony of being on WhatsApp groups where some entrepreneurs have managed to get their money out of SVB UK, escalating the bank run, while others that slowed down did not .
The symbiotic and perhaps too close relationship to the tech ecosystem that SVB UK represented has not been lost on some observers.
An entrepreneur I spoke to did not mince words:
“It’s completely screwed up. Yesterday some of the founders said, ‘Holy fuck, we have £900k in the bank.’ And the thing is, SVB makes it mandatory that you have to bank with them in the first place if you have a venture loan. It’s like a mafia, like a protection racket.
THE PROCESS FROM HERE
The BoE will take over from here and may appoint a liquidator, but will likely try to find a buyer for SVB UK first. And if all goes well, the buyer will move quickly, but they will have to exercise due diligence, so it won’t happen overnight. The question then is: how does the receiver or the bank trade the assets of the SVB UK?
In the meantime, the BoE will likely be sensitive to both their legal obligations regarding insured deposits and the realities of making cash available to keep businesses afloat. United Kingdom administrators and liquidators have the authority to trade with SVB UK if they believe that trading preserves or increases the value of an asset.
A well-placed source told TechCrunch: “I can’t believe that anyone in the BoE appointed to oversee affairs in this situation would see the benefit of keeping SVB UK’s doors closed, as the only thing that does is destroy even more trust… Let’s hope the sales process is completed soon.”
Already opposition MPs weigh in, with Shadow Chancellor Rachel Reeves respond on Twitter:
“This will be a real concern for many companies, including startups, in our country. The Chancellor urgently needs to assess the magnitude of the risks to UK businesses from the collapse of the SVB, and work with businesses to manage those risks.
And Labor MP Darren Jones tweet: “The government might decide that a minor banking crisis in the US resulting in bankrupt British companies and redundant tech workers is just the free market. Or the Prime Minister could be serious about Britain being a science and technology superpower.”
Encouraged by many VCs to close UK SVB bank accounts to receive their venture capital backed funding, many UK startups are now in a precarious position, their bank accounts now in limbo and inaccessible. If the BoE chooses to let SVB UK go bankrupt, it could create a huge, long-term funding vacuum for years to come.
The events could not have come at a more important time for the Conservative-led UK government as it has sought to push back the UK’s status as a European tech giant in the wake of Brexit and the loss of access to the Horizon 2030- programs of the EU. A recently announced Department for Science, Innovation and Technology may not be enough if 30% of UK tech startups are wiped out.
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