The Collapse of Silicon Valley Bank: It’s Impact on the Tech Industry
On March 10, 2023, the financial industry was rocked by the news of the collapse of Silicon Valley Bank (SVB) — the 16th largest bank in the United States. The bank’s collapse was the second-largest in US history, with customer deposits worth nearly $175 billion coming under the control of regulators [10]. The collapse of SVB has sent ripples of anxiety throughout the tech industry, and experts are now speculating about the long-term impact of this event. This article aims to explore how the collapse of Silicon Valley Bank affects the tech industry and how it happened.
The Collapse of Silicon Valley Bank
SVB was known for its work with venture capital firms and was described by CNN as “the go-to bank for US tech startups.” [5]. The bank was headquartered in Santa Clara, California, and had a portfolio of clients in the tech industry. SVB’s collapse was caused by a mass run on the bank, with depositors withdrawing money amid anxiety over the bank’s health [2]. The run on the bank’s deposits was triggered by dislocations spurred by higher rates, as startup clients withdrew their deposits to keep their companies afloat [9]. The California Department of Financial Protection and Innovation took over the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver [1].
Impact on the Tech Industry
The collapse of SVB has sent shockwaves throughout the tech industry, which has been one of the fastest-growing sectors in the US economy over the last few years. SVB was a crucial lender to many startups and tech companies, and its collapse has the potential to disrupt funding flows for early-stage companies. SVB’s clients included companies such as Airbnb, SpaceX, and DoorDash, among others [3]. In fact, some of the biggest names in the tech industry have already expressed their concerns about the impact of SVB’s collapse. Elon Musk, CEO of SpaceX and Tesla, tweeted that “the collapse of SVB is going to be a big blow to the tech industry” [6].
The collapse of SVB is expected to make it harder for startups and early-stage companies to get access to funding, as the bank was a crucial lender in this space. The bank had a reputation for being one of the few lenders that understood the needs of startups and had a willingness to take on more risk than other lenders. The bank’s collapse is also expected to affect the venture capital industry, which is a critical source of funding for startups. The bank was known to work closely with venture capital firms and had a deep understanding of the industry. The collapse of SVB is likely to reduce the amount of capital available for early-stage companies, leading to a slowdown in innovation and growth in the tech industry [8].
