One hour and three minutes before Silicon Valley Bank blocked all withdrawals, Pat Phelan got the last of his company’s money out. Phelan’s cosmetic medicine startup, Sisu Clinic, kept the majority of its reserves with the California-based bank. When he saw whispers of its problems spreading across the internet, he joined the digital bank run that ultimately pushed Silicon Valley Bank to collapse.
“I just messaged our chief financial officer and said, ‘Get the money out,’” Phelan says, adding he had to wait all night for the funds to arrive in his Bank of Ireland account. “It was an incredibly worrying 26 hours.”
After a tense weekend, regulators in the UK and US have stepped in to protect depositors, averting the most dramatic potential consequences of the largest US bank failure since the 2008 financial crisis.
But many in Europe’s tech industry warn of a slower-burn crisis to come. The reason that Silicon Valley Bank was so popular was because it filled a role that no one else would. It was part bank, part networking community, part venture capital firm. In some countries it was a major investor. In Ireland, the bank had planned to invest more than $500 million in technology and life science startups by 2024. In the Netherlands, the bank was in discussions about how to finance more local companies. Europe’s tech sector was already struggling with funding shortfalls, mounting losses, and widespread job cuts. The loss of Silicon Valley Bank only deepens the gloom.
“What happened during the last few days is once again there was a recognition that, especially when it comes to bigger [investment] rounds … there are not that many real big funds that can play a major role,” says Rinke Zonneveld, the CEO of Invest NL, a government-backed investment firm in the Netherlands. “We are dependent on US money.”
Silicon Valley Bank was embedded in Europe’s tech sector via a series of affiliated businesses and offices. Its Danish office, which didn’t have a banking license, focused on networking. The German branch did not offer a deposit business. But at the heart of that system was the bank’s London-based subsidiary, established in 2012, which helped startups across the EU with funding, loans, and accounts. On Friday, the Bank of England declared that Silicon Valley Bank was set to enter insolvency, before that arm of the business was acquired in a last-minute £1 rescue deal by HSBC bank.
But many of Silicon Valley Bank’s customers turned to the bank exactly because they felt that traditional lenders were not set up to cater to the technology industry’s specific demands.
The bank didn’t just enable tech companies with unusual financial structures to open accounts, says Check Warner, partner at London-based inclusive venture firm Ada Ventures. It also sponsored events and organizations trying to make the UK tech sector more diverse. “SVB was much more than just a bank,” she says. “I’d love it if a homegrown UK business was doing this role, but in the absence of that, Silicon Valley did it and did it really well.”