The bank was also the biggest lender to startups, which do not just raise a ton of money from VCs in funding rounds but also borrow a ton along the way. A loan to a pre-revenue startup that has not even begun testing its business model is the riskiest loan any bank can make. That said, one in a million start-ups ends up becoming the next Google.
On March 10, Silicon Valley Bank (SVB) imploded. The US bank was the 16th largest in the country, with US$209 billion ($282 billion) in assets, and a key cog in the wheel of the innovation start-up ecosystem. Its implosion was the second-biggest bank failure since Washington Mutual’s collapse at the height of the 2008 global financial crisis. The way I see it, banks in the US, as well as the entire tech ecosystem — the key driver of American growth for the past 15 years — will never be the same again.
Founded in 1983, SVB was unlike any other bank in America. Its depositor base was one of the most concentrated of any financial institution on earth — mostly venture capital firms (VCs), their limited partners (LPs) and their investee firms — tech and biotech start-ups. It was the beneficiary of most of the money that large VCs were ploughing into start-ups. More than 50% of Silicon Valley start-ups did business with SVB and it had a hand in 44% of VC-backed tech IPOs last year. Among its early clients was Cisco Systems, the darling of the tech boom in 2000. Big depositors included streaming device maker Roku, video gaming platform Roblox and aerospace manufacturer RocketLab.
