HOME - Companies - News
 
 
27 March 2023

What the Silicon Valley Bank collapse means for science start-ups

By Katharine Sanderson, Nature News


The collapse of Silicon Valley Bank (SVB) on 10 March sent science and technology start-up companies into chaos and has left many questioning where investments will come from in the future.

Regulators closed the bank after several days of turmoil following an announcement that it needed to raise U.S. $2 billion to cover debts due to rising interest rates. This led to a run on the bank as several large venture-capital firms advised their clients to withdraw funds.

SVB was known for funding technology start-ups. Its location in Silicon Valley in the San Francisco Bay Area, meant that many of these start-ups were green-energy or biotech companies.

The situation after the collapse was “absolutely terrifying”, said Ethan Cohen-Cole, chief executive of Capture6, a clean-technology start-up in Berkeley, California, that is developing ways of capturing carbon dioxide directly from the air. 

“Your first thought is: ‘This is the end of your company,’” he told Nature

But on March 12, the U.S. government announced that it would guarantee deposits with the bank, reassuring its former customers. Although relieved, Cohen-Cole said he doesn’t think this was necessarily the right thing to do to ensure long-term investment in companies such as his. 

“They’re perpetuating the problem,” he said. 

The rescue plan covers immediate cash-flow problems such as paying employees, but the next step remains unclear, he said, adding that he would like to have seen the government bolstering existing lending programs for small businesses. Cohen-Cole predicts that investors will back away from investing in small companies, and this will inevitably affect small start-ups working on climate solutions.

HSBC buyout

In the United Kingdom, events have played out slightly differently. On March 10, the Bank of England announced that SVB’s UK arm would go into liquidation, meaning catastrophic losses for SVB’s customers. But a frantic weekend of lobbying and discussions by the country’s tech leaders meant that, by March 13, SVB’s operations there had been rescued by HSBC bank — which bought SVB UK for £1 ($1.20), allowing all banking operations to carry on as before.

Sebastian Weidt, chief executive of Universal Quantum, a quantum-computing start-up in Brighton, U.K., which had millions of pounds deposited with SVB UK, said the situation was very stressful. 

“We had to work under the assumption that our money would be gone, which means we had to find ways to recapitalize Universal Quantum,” he said. The company was in the fortunate position of having revenue streams after securing a €67-million ($72-million) deal with the German Aerospace Center based in Cologne (although these funds were no longer needed once HSBC had stepped in).

Samira Ann Qassim, co-founder of Pink Salt Ventures in London, which invests in early-stage female-led tech enterprises, advises companies to hold accounts with different banks to avoid this situation arising in future. 

“That’s the only risk protection that you can take,” she said. Early-stage start-ups would have been hit the hardest had the U.K. government and HSBC not brokered the deal, she added. “It could have been a few years of absolute chaos.”

Aileen Ryan, chief executive of Preoptima, a U.K.-based start-up that develops design tools to reduce the carbon footprints of new buildings, said that she still plans to bank with SVB UK under its new ownership. But she intends to spread funds across a number of banks in future.

Broader issue

The SVB collapse is symptomatic of the troubles facing the wider financial environment, said Matt Lilley, president of Hult Business School in London. 

“The environment was getting much tougher for venture-capital funding,” he said. “I think [the collapse] is an effect rather than a cause, and the broader cause is rising interest rates.” 

He predicts that even without SVB, decarbonization start-ups will continue to attract investment in the United States, because of the government’s Inflation Reduction Act, which incentivizes investment in clean technology.

Nevertheless, climate-tech entrepreneurs remain nervous, said Cohen-Cole. 

“While the lending capacity of SVB can be replaced by other institutions, the potential retrenchment in lending broadly could be damaging,” he said. 

“The pity is that SVB was a unique case, not a reflection of the climate-tech space, nor of the economy in general. As a result, I’m confident that other capital providers will ultimately learn of this uniqueness and seek to replace any SVB lending quickly.”

Katharine Sanderson. "What the Silicon Valley Bank collapse means for science start-ups." Nature News. 14 March 2023. doi: https://doi.org/10.1038/d41586-023-00778-8.

Related articles

The new implant’s design reduces or eliminates gaps where food typically collects, and it maintains a narrow side-to-side or buccal-lingual profile to preserve bone. 


Bjorn Freeman-Benson brings decades of experience leading world-class engineering teams and bringing the best-in-class products to market. As the senior VP at New Relic, he built the team from three...


By UF College of Dentistry News

A team of University of Florida College of Dentistry innovators received a $10,000 grant this spring for their evidence-based mouthguard business idea. They entered the Luby Microgrant Pitch...


Frédérik Marcil, founder and CEO of Kube Innovation, talked about his background as a mechanical engineer working in the aerospace industry. He went from...


Travis Rodgers shares his research of 100 failed companies and outlines the top 10 reasons why dental software companies fail.


Read more

Dental autotransplantation (AT) is defined as the transplantation of a tooth from one site to a different site in the oral cavity of the same individual. 


Born and raised in Havana, Cuba, Layra Valdes, DMD24, first became interested in dentistry when her orthodontist showed how her dental experience could be fun and educational rather than scary and...


Pearl announced that Software of Excellence, a leader in dental software, has selected Pearl as its new, exclusive dental artificial intelligence (AI) provider.


DEXIS presents the latest innovation to its digital ecosystem with an all-new dental intraoral sensor, the DEXIS Ti2 Sensor. The DEXIS digital ecosystem is a comprehensive, AI-powered platform for...


Millennials, also known as "Gen Y," and Gen Z are redefining the boundaries of consumption and savings. 


 
 
 
 

 
 
 
 

Most popular

 
 

Events