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Inside UK startups’ scramble to survive Silicon Valley Bank ‘disaster’

Silicon Valley Bank UK startups
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When Cardiff-based car rental platform Finalrentals raised hundreds of thousands of pounds in its first external funding, it had big plans to grow its headcount and expand the business. A cloud of uncertainty now hangs over its future following the collapse of Silicon Valley Bank, where Finalrentals holds all of its currently inaccessible funds.

On Friday, as the shockwaves from the second-largest US banking failure in history made their way across the Atlantic, Finalrentals’ founder and CEO Ammar Akhtar was “not really concerned” because Silicon Valley Bank UK – a wholly owned subsidiary of the California-based startup lender – had told customers their money was “ringfenced”.

However, later that afternoon an investor told him to “move 99% of your money out”, and to do it “right now”.

Akhtar immediately made the transfer. But he quickly realised the money had not left his SVB account, despite transfers typically taking “a minute or a few seconds”. Nor had it arrived in a separate and newly created account with Wise.

As of Sunday evening, the funds are yet to clear.

“I believe it might hit tomorrow morning. Fingers crossed,” said Akhtar.

For Akhtar, the immediate concern is making payroll for its 22 employees at the end of the month. But the uncertainty caused by the biggest banking failure since 2008 threatens to jeopardise growth plans that included hiring 100 additional staff.

“We had everything planned… and this is the last thing I want, not being able to access my money,” he told UKTN. “It will be a disaster.”

‘Existential threat’

Startups across the country are facing similar situations to Finalrentals this weekend as the government holds crisis talks and considers an emergency lifeline to prevent SVB UK from entering insolvency on Sunday evening.

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”.

How exposed is the UK tech ecosystem to SVB? According to insiders, the bank’s UK arm has 3,300 customers, with deposits held standing at nearly £7bn on Friday.

While the prime minister, chancellor and the governor of the Bank of England held crisis talks, UK startup forums were ablaze with confusion, panic, and fears over the future of their businesses.

Toby Mather, CEO and co-founder of Lingumi, first heard that his company’s primary bank had collapsed as he was getting off a plane.

Lingumi, a London-based edtech platform for developing children’s language skills, has banked with SVB for seven and a half years. It raised £4m in Series A funding in 2020 and has approximately 85% of its capital currently tied up at SVB UK.

“Like everyone else we’re worried about how I’m going to make payroll at the end of the month,” Mather told UKTN.

“We kept our staff up to date, we’ve been very transparent about what’s going on – that we will focus on making sure we assemble the cash we have access to and pay our own costs,” he said.

He added that his company is in the “rare and lucky” situation among startups where it is generating revenue and was profitable last quarter.

“We’ve been really focused on cutting back to profitability over 18 months in the business,” Mather said. “We achieved that in Q4. But it also means there’s nothing else really we can cut, so the only thing we can do is try and negotiate with our suppliers and their invoices.”

Camilla Easter, CEO of Oxford Medical Products, told UKTN her company currently has around half its capital tied up with SVB.

The Oxfordshire-based company, which has engineered a hydrogel for weight loss, has raised north of $8m in funding.

Easter said Oxford Medical Products successfully moved some of its funds out of SVB on Friday morning. It has separate capital available via a grant with Innovate UK to fund its clinical trials at NHS hospitals in Southampton and Bristol.

If it is unable to access its remaining capital held at SVB UK, Easter said it would hinder its growth plans and its R&D work.

“So it would be incredibly hard for us,” Easter said. “It would slow us down, it’d be hard for us to ensure that we could get that product to market in a timely manner.”

She added: “We’ve had phenomenal support from other founders but also our shareholders over the weekend, which has allowed us to ensure we are able to meet our short and medium-term needs should the worst happen.”

Venture debt concerns

Manchester-based Arctic Shores, a company providing skills assessment tools to recruitment firms, currently has 80% of its funds with SVB UK. Robert Newry, the company’s CEO and co-founder, told UKTN that it has enough cash to cover costs for the next three months.

He said that problems moving sums have been exacerbated by anti-money laundering checks given the large sums involved.

“Even if you could transfer it, quite rightly the other banks are going ‘hang on, this is a large sum of money coming into this account, this is unusual’. And [other banks] put more checks in so it actually was really hard to get money out of SVB quickly,” he explained.

Newry said there was an additional complication from its venture debt holding, raised as part of its £5.8m recent Series B round.

“The terms of the venture debt meant that we had to keep all our funds and additional equity funds in Silicon Valley Bank,” he said, adding that it’s not clear if that money will leave the account and he “won’t get confirmation of that until tomorrow morning”.

SVB UK takeover talks

Akhtar and Mather, like many founders, said that prior to SVB’s collapse – caused by a liquidity crisis at its US parent company – it has been an incredibly supportive bank for startups.

Now, there is a sense of shock that a bank of SVB’s size was able to crumble so rapidly.

“Depositing money with the 16th largest bank in the US is not supposed to be a high-risk thing to do,” said Mather.

SVB UK now faces a pivotal period as potential buyers hold talks to save it at the eleventh hour. Potential buyers reportedly include high street lenders like Lloyds and Barclays, along with challenger bank OakNorth and Bank of London.

Prime Minister Rishi Sunak said that talk of setting up an emergency fund to bail out startups, an alternative to an SVB UK takeover, is “speculation”.

Speaking to reporters on a flight to the US on Sunday, he said: “We don’t believe there is a systemic contagion risk. We’re working to recognise the anxiety and the concerns customers of the bank have and making sure we can work to find a solution that secures people’s operational liquidity and cashflow needs.”

‘This is not a 2008 style bailout’

Most SVB UK startup deposits are insured up to £85,000 – or £170,000 for joint accounts – under Prudential Regulation Authority protections.

But the driving fear among UK tech stakeholders is that no swift solution will send a secondary shockwave throughout the ecosystem, threatening jobs, suppliers, and ultimately economic growth.

“The SVB disaster is not just a bank disaster, it’s a disaster for the industry,” said Akhtar.

Easter said she wants to see “all the tech companies with their deposits in the bank reimbursed to the fullest extent absolutely possible”.

“We’ve all got payroll, we’ve all got obligations, and we’re all trying to innovate and grow, which is desperately what this country needs at the moment,” she said. “We do need to grow and we need this sector. Otherwise, we’ll fall behind.”

Newry praised the communication from the Treasury, which has been collecting information from startups affected by SVB UK. “They understand this is a real problem,” he said. “They know that these businesses are important to the future of the UK economy and they are working with the relevant authorities to ensure that payroll and funds are released as quickly as possible. And that’s what you want from government.”

Mather said: “This is not a 2008 style bailout, where the public has to put their hand in their pockets, because these are real deposits, real cash and real assets. What we would like to see is get those protected.”

He added: “Today, there may be no risk of systemic failure. But there is risk of systemic failure tomorrow, in the proverbial sense, which is that the future Deliveroos, Arms and companies trying to find cures for cancer using AI or startups that have just raised a few million dollars to build their innovation will go bankrupt if the government doesn’t do something.”

Update: On Monday HSBC acquired Silicon Valley Bank UK and said all deposits are protected