Startup Learnings From The Collapse Of Silicon Valley Bank

We know you're always on top of your game when it comes to your business, but as this weekend has shown, sometimes the unexpected occurs. In case you missed it, the 16th largest US bank, Silicon Valley Bank (SVB), was shut down last week by regulators due to an inability to service withdrawal requests from depositors. This announcement came after the bank suffered a loss of $1.8 billion dollars.

As the situation evolves we understand that this news may be unsettling, particularly for startup founders whose funds may be tied up in the bank. If you’re a company affected by the collapse of SVB and need legal advice, our US team is ready to assist you. Simply drop us a line at hello@sparring.io.

The good news is that steps are being taken to support startups. For example: 

  1. On Sunday, the US Treasury, Federal Reserve, and the FDIC announced measures to strengthen confidence in the US banking system following the closure of SVB. In practice, this means depositors will have access to their money starting today, and additional funding will be made available to help assure banks have the ability to meet the needs of their depositors. 
  2. Today, HSBC has announced that it will be acquiring the UK arm of the bank, protecting UK businesses. 

The collapse of SVB however is unlikely to be an isolated event. With the ever-changing US technology ecosystem, we must always be prepared for the unexpected:

  1. First, it’s important to note that the collapse of SVB stemmed from the bank’s startup clients withdrawing their deposits which left SVB short on capital. This is a valuable lesson to all founders to understand the risks associated with the bank where their funds are stored and to maintain accounts with separate banks. For example, SVB served almost half of US tech companies, making it particularly vulnerable to changes in the ecosystem, such as more expensive capital and rising interest rates.
  2. Secondly, while investor funds may be a great source of income, aim to avoid them as the lifeline of your business and ensure to diversify your investors. Overall, it’s imperative that you set up a coherent and resilient business model that ensures multiple income streams in case of events like this.

As a founder-focused law firm, we want to ensure that you’re always best informed. We’ve therefore gathered a few resources that may be of use to you in this difficult time:

In conclusion, while the closure of Silicon Valley Bank is a setback, by taking proactive steps to protect your business, you can weather the storm. At Sparring, we’re here to support you through these challenging times. If you need legal advice, don’t hesitate to reach out to our US team at hello@sparring.io

Share:
LinkedIn
Twitter
Facebook

Recommended posts

Subscribe

Learn more about legalities affecting startups and innovative businesses.

By submitting this form you agree to Sparring processing any personal data you may provide, including your email, name and content of the message, to reply to your request. Find out more in our Privacy Policy.

Contact us

Start sparring with us today by sharing more about your unique situation and vision, and discover how our expert team can provide the support and assistance you need.

By submitting this form you agree to Sparring processing any personal data you may provide, including your email, name and content of the message, to reply to your request. Find out more in our Privacy Policy.

Your form was sent successfully

We will get back to you with the answer as fast as possible. 🚀