UK tech firms are anxiously waiting to find out what government support they will get after the collapse of Silicon Valley Bank (SVB) in the US. Some have told the BBC they could go bust if help does not come soon enough. The Treasury says it is working to find a solution. An investment group has also offered to buy the bank’s UK arm. It comes as US customers have already been told their deposits will be fully protected by the US government, putting pressure on the UK government to act.
Speaking to reporters in San Diego on Sunday evening, Prime Minister Rishi Sunak said: “We will have something to say very shortly. “But we will continue to support our world-beating technology sector and all the high-skilled jobs that it supports and also you should be reassured that our overall financial system is sound and there’s nothing to worry about there.” Earlier, Chancellor Jeremy Hunt told the BBC there was no risk to the UK’s financial system from the collapse of SVB, but “there is a serious risk to some of our most promising companies in technology and life sciences”. He said he had been working with the prime minister and Bank of England governor “through the weekend to come up with a solution”, and the government would bring forward a plan in the “next few days”. Labour has criticised the government for not acting sooner.
Silicon Valley Bank – which specialised in lending to technology companies – was shut down by US regulators on Friday in what was the largest failure of a US bank since 2008. The bank’s UK subsidiary was put into insolvency on Sunday. It will allow individual depositors to be paid up to £85,000 from the UK’s deposit insurance scheme. However, most have far more money than this saved with the bank and will struggle to keep going if they are not able to access it.
Toby Mather, chief executive and co-founder of Lingumi, an education technology start-up, told the BBC his business was highly exposed to SVB’s collapse. He said: “85% of our cash is held in Silicon Valley Bank.. [So this] is a really existential threat to us because I’ve got to pay my employees and they’ve got kids and mortgages and so on.” He also warned there could the ripple effect could be “huge” if deposits are not secured.
Camilla Easter, chief executive at Oxford Medical Products, a health-tech company, said she was working “incredibly hard to see how we can meet our obligations to our shareholders and creditors”. “What we need as an industry right now is for them to very rapidly give us a short-term plan on how we can access our money in those accounts,” she told the BBC.
‘Preventative action’
US based Etsy, the online crafts marketplace, said had experienced a delay in issuing payments to some sellers related to the unexpected collapse of Silicon Valley Bank. It said teams were “working around the clock to implement a solution” and that it expected to pay sellers via its other payment partners in the coming days More than 200 bosses of UK tech companies signed a letter addressed to Mr Hunt on Saturday calling for the government to step in.
The letter, from Fintech Founders, said many financial technology firms did all of their banking with SVB “and will therefore go into receivership imminently unless preventative action is taken”. One source in a tech firm told the BBC between 30% and 40% of UK start-ups employing up to 50,000 people could be affected by the collapse. On Sunday, a consortium of investors led by The Bank of London, a clearing bank, submitted a formal bid to buy SVB UK. Others including a Middle Eastern investment fund and the banks Barclays and Oaknorth are also said to be mulling offers.
SVB collapsed in the US after failing to raise $2.25bn (£1.9bn) to plug a loss from the sale of assets, mainly US government bonds, that were affected by higher interest rates. Its troubles prompted a run on the bank in the US and sparked investor fears about the general state of the banking sector. On Sunday, the US government said people and businesses who had money deposited in Silicon Valley Bank (SVB) would be able to access all their cash from Monday. It also said the taxpayer would not bear any costs from the move.
What went wrong at Silicon Valley Bank?
Silicon Valley Bank specialised in lending to early-stage businesses, and the company served nearly half of US venture-backed technology and healthcare companies that listed on stock markets last year. The firm, which started as a California bank in 1983, expanded rapidly over the last decade. It employs more than 8,500 people globally, with most of its operations in the US. But it has been under pressure as higher rates make it harder for start-ups to raise money through private fundraising or share sales. More clients were withdrawing deposits in a trend that snowballed last week. Silicon Valley Bank UK, which has stopped making payments or accepting deposits, is officially expected to go into insolvency on Sunday evening.
