Silicon Valley Bank: Tech Darling’s Catastrophic Demise

Silicon Valley Bank, one of the largest banks and prominent lenders for tech start-up companies, collapsed on Friday (3/10). SVB was priorly aimed to obtain additional capital through shares for US$2.25 million or equivalent to Rp34.75 trillion. US$1.25 billion or Rp19.31 trillion is expected to be obtained through the sale of US$500 million or approximately Rp7.7 trillion temporary shares through convertible preferred shares. However, the current high interest rates concerned investors that SVB will suffer payment difficulties; thus, customers withdrew US$42 billion in a single day from Silicon Valley Bank, leaving the bank with US$1 billion in negative cash balance. This massive amount of withdrawals became the largest bank crash since the 2008 financial crisis, and it put nearly US$175 billion in customer deposits under the regulator’s control. As a result of the collapse, a rush of money from customers flowed swiftly. SVB's shares also fell by more than 60%, causing the capital market authorities to suspend them. Following the crisis at SVB, US Treasury Secretary Janet Yellen immediately held an emergency meeting with the US central bank The Federal Reserve, as well as the US Deposit Insurance Corporation and the Office of Currency Supervision. Minister Yellen places full trust in banking regulators to take appropriate action as they remain resilient and have effective tools to deal with this catastrophe.

As the 16th biggest bank in the US, shock from Silicon Valley’s woes reverberated through parts of the banking sector. Investors started to dump bank stocks, including First Republic, Signature Bank, and Western Alliance. Many of those institutions cater to niche clients. However, the nation’s largest banks appeared insulated from the fallout. Reuters calculations estimate that US banking stocks lost US$100 billion in market value in the last two days. Meanwhile, European banks lost US$50 billion. SVB served and built a very strong product offering for VC firms, with several clients from VCs based in South East Asia, such as Jungle Ventures and Golden Gate Ventures. The bank provided VC firms and startups access to the U.S. capital market as well as networking opportunities in the US. Vinnie Lauria, the managing partner at Golden Gate Ventures, conveyed to CNBC on Tuesday (3/14) that replacing some of the features that SVB provides is arduous. The bank’s collapse caused Bitcoin and cryptocurrency price surge. According to Indodax CEO Oscar Darmawan, the SVB case has caused many investors to divert their funds to crypto assets, especially bitcoin as a hedge asset. With rising bitcoin prices, triggering altcoins to rise also. The demand for crypto, which is currently increasing, is expected to take place gradually in 2023.

The collapse of Silicon Valley Bank will undoubtedly have a significant impact on the venture capital market, with many startups and investors likely to face increased scrutiny and tighter lending restrictions. Venture capital firms may also need to adjust their investment strategies to compensate for the loss of a major funding source, leading to a more cautious approach to investing in startups. Despite these challenges, industry experts remain optimistic about the future of the tech industry. Many are calling for increased investment in innovative technologies and a renewed focus on supporting emerging companies in the wake of the crisis. The pandemic has accelerated the adoption of new technologies and has further highlighted the importance of innovation, making it more critical than ever to ensure that startups have access to the funding they need to succeed. The collapse of Silicon Valley Bank has highlighted the need for a more robust and diverse funding landscape for startups and emerging companies. As these companies face increased uncertainty and rigid lending restrictions, it is important for investors and industry leaders to work together to ensure that innovative technologies and emerging companies continue to thrive.

Sources:

CNBC

New York Times

Reuters

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