SVB Failure Means Tech Startups Are Struggling to Meet Payroll and Some Could Go Under

It is no longer news that the crypto-friendly bank Silicon Valley Bank has gone under. Following the US-based bank’s voluntary liquidation, a lot of tech startups who are customers are bemoaning their losses, with many giving a dire forecast of possible shutdowns on the horizon.

SVB’s Collapse Having Market-wide Impact

The financial market has endured a lot of mishaps in recent months. A new occurrence has led to the US government taking over the operations of Silicon Valley Bank following a turbulent few weeks.

Known by its singular abbreviation as SVB, the financial institution was better recognized as a crypto-friendly bank as it offered its services to builders in this nascent industry. However, its recent voluntary liquidation has a far-reaching effect beyond the crypto market.

SVB has similarly interfaced with a lot of tech startups, with many of them locking their funds in theirs. Following the news of the bank’s liquidation issues, many have come out to air their frustration with another calamity hitting the broader financial market.

Speaking to TechCrunch about the ongoing crisis, CEO of Polymath Robotics Stefan Seltz-Axmacher said he transferred about 50% of his company’s funds on Wednesday to a secondary account separate from SVB when he got wind of its troubles on a founder’s WhatsApp group chat.

When the news went full-blown, Seltz-Axmacher transferred a further 25% out of the SVB account. He has since placed a wire transfer order, but SVB has not honored the request.

However, not so many have been lucky. Ciara May, the founder of hair care company Rebundle, said all her attempts to pull her funds have been futile. According to her, SVB is the only bank her company operates, and her banking associates have since informed her that it might be too late.

James Oliver of the networking app Kabila shares a similar fate. According to him, all the company’s funds are tied in on SVB, and given the restriction on withdrawals, there is a growing certainty that he might not be able to meet up with employee payroll.

Oliver believes that, in addition to losing money, many venture capital (VC) firms will be market-shy after losing money, making it even more difficult for tech startups to raise funds now.

Crypto Market in the Spotlight

One thing that has kept several mainstream investors away from cryptocurrencies is their volatile nature. The frequent price swings and uncertainty surrounding regulations have kept many off their seats.

In addition, the plethora of incidents that have rocked the nascent financial landscape has also become a mainstay.

It all started with Terra blockchain, which saw its algorithm-backed stablecoin, UST unhinge from its one-on-one dollar peg. This event cumulated in the folding of key businesses like Three Arrows Capital (3AC for short) and several businesses that depended on the one-time big DeFi shot.

The second most recent has been the FTX case involving founder Sam Bankman-Fried and sister company Alameda Research. The ongoing case involved the company mishandling over $10 billion of investors’ funds, leading to the eventual insolvency of the Bahamas-based Bitcoin exchange.

Many people associate SVB with crypto more than a regular commercial bank, largely due to its friendly lending system for the blockchain-facing industry.

Following the news, the crypto market has plummeted more than 7%, dropping off its shaky perch on the $1 trillion. Major market movers like Bitcoin and Ethereum have suffered huge losses in the past day, with BTC down from the $20,000 price peg.

However, the crypto market is renowned for its ability to bounce back from a downtrend reversal. Growing belief is that the nascent industry will be able to weather the storm once more as investors turn to decentralized financial systems to safeguard their assets.

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