Venture capitalists are telling UK startups in their portfolios to be cautious but “maintain a level head” following the collapse of Silicon Valley Bank (SVB).
British startups on Friday were weighing up how much of their funds to withdraw from SVB’s UK subsidiary after a liquidity crisis prompted regulators in California to take control of one of the largest startup lenders in the US.
In a statement, SVB UK said it is a “standalone independent UK regulated bank” and that funds are “ringfenced” from its US parent company and other subsidiaries.
Silicon Valley Bank UK has said it is still processing payments and funding loans for UK clients. But startup founders have been scrambling throughout the day to ensure their funds are sufficiently diversified.
Francesco Perticarari, a deep tech investor and general partner at Silicon Roundabout Ventures, told UKTN that the “majority of VCs” he has spoken to are advising portfolio startups not to “wipe out their accounts” with SVB UK.
He said the danger will arise if too many startups banking with SVB UK try to make withdrawals at once, making it a “self-fulfilling prophecy”.
Perticarari added that two of his portfolio companies banking with SVB UK have spread some funds into other banks.
“Everyone is recommending to be cautious. Everybody is telling founders to make sure you have one to two months of runway out of SVB,” he said. “Because what could happen is there is too big a surge in demand then the bank might stop withdrawals to assess the situation.”
He added: “It’s like during Covid, if people keep buying toilet paper then it’s just going to disappear.”
‘Take advice before doing anything rash’
Reem Mobassaleh Wyndham, founding partner at Pact, an all-female-founded early-stage fund, told UKTN: “The problem is it’s in a company’s incentive to diversify. Even if there’s a small chance things go wrong, that outcome could be catastrophic for funds and companies banking at SVB.”
Mobassaleh added: “The ‘rational’ thing on a company level is to move your money, but if everyone acts ‘rationally, that creates an overreaction at the macro level. In the long term, the arc of early-stage VC is long, so it’s unlikely to affect outcomes seven to 10 years down the line. Still, there will be a restructuring of the market with the pace of deployment and a doubling down on cash management, unit economics and profitable growth.”
However, some VCs are moving cash out of SVB UK. According to a letter sent by the first co-founder of London-based VC Firstminute Capital, seen by Sifted, asked its limited partners not to send capital to its SVB accounts.
Wil Benton, an angel investor and co-founder and director of Metta, said: “Silicon Valley Bank, both in the UK and further afield, is one of the tech ecosystem’s most engaged and supportive stakeholders.
“While it’s always good practice to diversify your financial holdings, it’s equally advisable to maintain a level head – even more so when the herd’s running amok in the china shop with little idea of what’s going on. If you need to, take advice before doing anything rash – and react because you need to, not because the herd is. SVB has supported the ecosystem well for years – we should do the same.”