Tech startups around the UK have let out a collective sigh of relief following HSBC’s purchase of Silicon Valley Bank UK and are now resuming business operations in the shadow of a near-missed disaster.
The last-ditch deal, confirmed on Monday morning after a whirlwind weekend of government crisis talks, fully protected deposits of startups across the country.
UK tech businesses had feared they would not be able to pay invoices and make payroll. There were also deeper concerns that a complete collapse would send shockwaves through the entire tech ecosystem, creating a domino effect of disruption for vendors and suppliers.
Robert Newry, CEO and co-founder of Arctic Shores, which had 80% of its funds held at SVB UK, said it was a “huge sigh of relief” hearing that HSBC had stepped in.
It means the Manchester-based business, which provides skills assessment tools, is on track to resume trading as normal “very quickly” now that it is able to make payments again.
“It was a massive relief, one of those moments where I’ll remember for a long while exactly where I was when I heard the news,” Eileen Burbidge, founding partner of early-stage VC firm Passion Capital, told UKTN.
From Monday afternoon, startups across the UK slowly began to regain access to their accounts, although many experienced slow services as the system came back online.
On Tuesday, startups that had faced the very real prospect of losing significant chunks of their capital – or insolvency – got back to work.
Burbidge, who is also executive director of employee reproductive health fertility wellbeing provider Fertifa – which didn’t have any exposure to SVB – says that startups she has spoken to are moving back to “business as usual” and focusing again on “building, executing”.
Hospital digital twin company Sanome is now turning its focus back to its newly-formed partnership with the NHS to pilot its tech. The startup had spent the weekend remodelling its cash flow, fearing the worst.
“From a healthcare perspective, had they [the government] allowed the market to collapse, it would have set everything back five to ten years just because it takes so long to generate evidence to develop partnerships with hospitals,” said Sanome CEO and founder Benedikt von Thüngen.
“That literally would have wiped out a lot of that progress that has been happening in the last five years.”
Joe Healey, co-founder and CEO of synthetic biology firm NanoSyrinx, described the HSBC deal as the “best possible outcome” and said his company would continue banking with HSBC’s new division as long as it’s the “spiritual successor” of SVB UK.
Startups praise government response
In a rapidly moving chain of events over the weekend, the Treasury and the Bank of England facilitated the rescue deal with HSBC after a number of potential suitors emerged.
Known internally as ‘Project Yeti’, industry groups like Coadec worked to drive home the message that letting SVB UK fail would be disastrous for the UK economy.
The swift resolution has earned Jeremy Hunt praise and political capital from the UK’s tech startup community ahead of Wednesday’s Spring budget, with founders and CEOs signing a joint ‘thank you’ letter to the chancellor on Tuesday.
Newry commended the government’s “urgency and concern” shown but criticised the wording of the Bank of England’s statement on Friday that he said downplayed SVB UK as a “small bank that’s not critical to the overall functioning of the economy”.
SVB UK: Lessons learned
The fall of Silicon Valley Bank is the biggest baking failure since 2008 and the second-largest in US history. It gave von Thüngen “deja vu” from when he was raising funds more than a decade ago for a previous venture.
“I think it’s probably spooked the market, certainly spooked startups and investors, but I’m pretty sure that’s actually a good thing because I think it will drive more financial discipline and fiduciary duty back into startups that maybe haven’t been as diligent as I should have done,” he said.
He added that there shouldn’t be a single point of failure and that he was “guilty” like other startups believing that banking with just SVB UK was sufficient.
“One of my concerns is that everyone might move on too quickly, as the tech sector is prone to do, and maybe not bear in mind lessons learned,” said Burbidge.
Startups up and down the country have spent the day reassessing their treasury strategies. Burbidge said a big lesson for startups should be ensuring their funds are “sufficiently diversified” and companies don’t move all their capital into another bank they deem “too big to fail”.
Burbidge added that the averted crisis should come as a wake-up call to government, regulators and society at large that the tech sector isn’t an “isolated niche sector” and that it “underpins everything else in the British economy”.
“If the acquisition hadn’t happened or if funds were still unavailable to people, much of the economy and services would have stopped,” she explained. “And I don’t know that people fully appreciate that, because the first thought [for many] was that this was a niche bank for a niche sector.”