Wondering what important tech companies the Silicon Valley Bank (SVB) crisis might affect? So many other tech and economics lovers are also worried like you.
The collapse of the Silicon Valley Bank (SVB) came as a surprise to the many tech startups who placed 100% trust in it. The California bank provided banking services to many tech companies and startups backed by venture capitalists. With SVB being the only banking partner of most of these companies, it’s understandable why its collapse brought tension to the world tech ecosystem.
While many analysts liken the unfortunate collapse to the 2008 financial crisis, others are more interested in its full impact. According to the National Venture Capital Association (NVCA), over 37,000 companies have funds worth more than the insurable limit of $250,000 stashed in the bank. Many company managers are already bemoaning the lack of funds to handle their customer’s employee’s payroll in the next 30 days. And that’s trivial compared to what is likely to happen if these companies cannot access their money in a couple of months.
But what tech companies have the most exposure to the SVB crisis, and how many might it affect? This article discusses the top ten tech companies the SVB crisis might affect.
Why Did Silicon Valley Bank Crash?
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The Silicon Valley Bank crashed because most of its customers panicked and started a run on the bank. The bank wasn’t insolvent, at least not until depositors started withdrawing their funds.
Until its closure on Friday, the Silicon Valley Bank was the 16th largest bank in the US, worth over $200 billion. However, what led to the collapse of SVB was a result of loss of confidence in the bank.
The Silicon Valley Bank invested a chunk of its customers’ deposits in some US government bonds. However, the bonds started to lose value when the Federal Reserve raised interest rates to fight inflation. To maintain the trust of its investors and customers, Silicon Valley Bank sold the underperforming bonds at a loss of $1.8 billion while intimating to the investors the need to raise additional funds. This spooked the investors and customers, and they started a run on the bank.
A Small List of Companies Affected by the SVB Blowup that Might Affect Startups and Small Businesses:
- Pure Storage
- Credit Karma
- Blue Apron
What Top Executives of Most Affected Startups Are Saying About the Silicon Valley Bank Crash
According to a securities filing, Roku reported that it has $487 million in SVB, representing 26% of the company’s cash or cash equivalents. However, to calm the tension among its investors and employees, it added that it has $1.4 billion in cash at “multiple large financial institutions.”
The Chief Financial Officer of the streaming platform, Steven Louden, further said that Roku has enough cash on hand to meet its working capital, capital expenditure and material cash requirements from known contractual obligations for the next 12 months and beyond.”
The Chief Financial of the gaming platform Roblox, Michael Guthrie, confirmed that the corporation has 5% of its $3 billion in cash at the SVB.
He further said that regardless of the outcome and timing of the $150 million trapped in the bank, the “Situation will have no impact on the day-to-day operations of the company.”
The Crypto platform Circle isn’t left out in the crumbling, as it was revealed on Twitter on March 11, 2023. In its tweet, Circle confirmed that it has $3.3 billion of the $40 billion USDC reserves at the Silicon Valley bank.
Circle joined the call with other important tech companies who relied on SVB for banking services for the US government to ensure the bank’s continuity.
Crypto exchange platform, BlockFi, which filed for bankruptcy in November 2022, is among the tech companies that the SVB crisis might affect if the government doesn’t interfere. The company declared having $227 million in uninsured funds held as money market mutual funds in the SVB.
However, in a bankruptcy hearing on Monday, Christian Okike, a lawyer representing BlockFi noted that they have enough funds to continue normal operations.
Want to learn the best time to declare bankruptcy? Study this guide.
5. iRhythm Technologies
iRhythm Technologies is one of the health companies that might be affected by SVB insolvency. In a securities filing, the company said it has $54.5 million in holdings at the SVB. It further stated it also has an outstanding $35 million term loan with the bank.
FarmboxRx, a company on a mission to make high-quality, farm-fresh fruits and vegetables accessible to everyone, is unfortunately affected by the SVB collapse.
The company launched in 2014 and moved its business to SVB in 2021. But luckily, it was able to diversify its banking before the collapse. In a statement after the SVB collapse, FarmbocxRx’s CEO, Ashley Tyrner said:
“Luckily, FarmboxRx made the decision to diversify our banking in mid Q1, but the series of events in the last 24 hours have been nothing short of shocking.”
7. Folx Health
The first digital healthcare service provider designed by and for the medical needs of the LGBTQIA+, Folx Health didn’t escape the SVB fallout.
According to CBS news, the CEO of Folx Health Liana Douillet Guzman commented on the incident. She said, “As a company with funds at the Silicon Valley Bank, this situation reaffirmed how important the team and village you create around your business is.” She explained that the team and executives would work together to safeguard the company and community.
Another digital health company affected by the Silicon Valley Bank (SVB) crisis is Viome, which studies chronic health diseases to discover early-stage cancers and more. SVB has been Viome’s banking partner since Viome was founded in 2016.
The CEO and founder of Viome, Naveen Jain, said to CBS news: “All of our venture capitalist investors said SVB was the best place for us.” Jain further reported that Viome has $25 million in the SVB.
One of the world’s top workforce management platforms, Rippling, also confirmed having funds in an SVB account. As a payroll partner to many businesses, the SVB impact on Rippling equally rubs off on other businesses whose payroll Rippling manages.
Rippling has made a series of tweets since the incident, telling its customers and partners to remain calm as it is positive all employees would be paid accordingly. The company has promised that moving forward, customers that run payroll with it will be paid via JPMorgan Chase.
What Role Does the FDIC Insurance Play When a Bank Folds Up?
The Federal Deposit Insurance Corporation (FDIC) works to bring stability in the event of a bank failure. This is to avoid triggering a financial crisis similar to the 2007-2008 crisis.
In the event of a bank crash, the FDIC steps in and takes over operations in the bank. It assures depositors easy access to their insured funds and makes it available within the next business day. It goes further to sell the bank’s assets and use the proceeds to cover as much of its debts as possible.
If you open a deposit account in an FDIC-insured bank, you automatically become insured. For each account ownership category, the standard insurance amount is $250,000 per depositor, per insured bank. Read this article to study more about business insurance.
Impact of the SVB Failure on Other US Banks Today (The Stock Market Indicates)
The collapse of the SVB has caused a significant drop in stock prices and triggered some customers to move funds from their banks. For instance, in light of the SVB failure, customers of the cryptocurrency-friendly bank Signature Bank got nervous. They withdrew more than $10 billion from the bank, forcing the regulators to close the bank on Monday, 13th March 2023.
Conclusion – the Silicon Valley Bank Impact on Tech Companies
While many tech companies have revealed their exposure to the Silicon Valley Bank crisis, looking at the many indirectly affected businesses is more troubling. If companies like Rippling fail to recover from this crisis, many more companies with no direct relationship with Silicon Valley Bank (SVB) might be forced to close their doors.