The UK government is holding crisis talks to explore a rescue package for tech startups facing a cashflow crunch following the collapse of Silicon Valley Bank.
The Treasury said it is looking at ways to “minimise the damage” to the UK’s startup ecosystem after the Bank of England moved to put the UK arm of the Californian bank into insolvency on Friday evening.
The collapse of Silicon Valley Bank, or SVB, is the biggest bank failure since the 2008 financial crisis.
The run on the specialist lender has sent shockwaves across the Atlantic. The failure of its UK subsidiary prompted emergency talks between the prime minister, chancellor and the governor of the Bank of England over the weekend.
The Treasury said the government is treating it as a “high priority”. It added that Silicon Valley Bank UK’s “failure could have a significant impact on the liquidity of the tech ecosystem”.
It is understood that the government is in talks with potential buyers to take over SVB UK, which became a legally separate entity from its US parent company in September 2022.
More than 200 UK startup entrepreneurs have written to Chancellor Jeremy Hunt warning that SVB UK’s insolvency poses an “existential threat to the UK tech sector”.
SVB’s rapid collapse has left many UK tech startups without access to funds. While most deposits are insured up to £85,000 – or £170,000 for joint accounts – under Prudential Regulation Authority protections, tech founders are scrambling for funds to make payroll and pay suppliers.
The signatories of the open letter told the chancellor that many of them were “running numbers to see if we are potentially technically insolvent”.
SVB UK held nearly £7bn in deposits when the Bank of England deemed it insolvent on Friday, according to the Financial Times.
Dom Hallas, executive director of the Coalition for a Digital Economy (Coadec), wrote in an update on Saturday that the “ticking clock is a huge problem for companies”.
Hallas added: “Right now, the key concerns remain immediate liquidity for companies and functional access to banking services on Monday.”
Government officials held talks with tech sector stakeholders on Saturday to hear industry concerns and explore possible solutions.
The government is asking affected startups to contact the Treasury with details including the size of their SVB UK deposit, approximate monthly cash burn rate and whether they have access to other UK banking facilities.
SVB UK has stopped making payments or accepting deposits. Some UK startups were unable to withdraw cash on Friday before steps were taken to move the bank into insolvency.
“This is an external shock that nobody saw coming,” Russ Shaw, CBE the founder of Tech London Advocates & Global Tech Advocates, told UKTN.
Shaw added that he thinks it’s “likely” that there will be a rescue package but it is unclear at this stage how it would be structured.
SVB’s implosion has sparked fears that the contagion could spread to other lenders, with global banking shares sliding on Friday. In a bid to calm markets, the Bank of England said that SVB UK has a “limited presence in the UK and no critical functions supporting the financial system”.
However, the open letter signed by UK startup CEOs and founders said this “displays a dangerous lack of understanding of the sector and the role it plays in the wider economy”.
Technology Secretary Michelle Donelan said: “We recognise that the tech sector is often not cashflow positive as they grow and I am determined to stand with them as we do everything we can to minimise impact on the sector.”
In a joint statement, the prime minister, chancellor and the Treasury said: “The government is working at pace on a solution to avoid or minimise damage to some of our most promising companies in the UK and we will bring forward immediate plans to ensure the short term operational and cashflow needs of Silicon Valley Bank UK customers are able to be met.”
SVB was taken over by US regulators on Friday after a liquidity crisis at the startup lender prompted panic withdrawals.
SVB UK said: “We are announcing that following conversations with the PRA there is an intention, barring any intervening event, to put Silicon Valley Bank UK Limited into insolvency from Sunday evening. We are determined to work on the behalf of our clients.”
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