Silicon Valley Bank reputable for serveing the technology industry for three decades, went belly up on March 10, 2023.
Silicon Valley Bank, a lender to some of the most well-known names in technology, became the biggest bank to collapse since the 2008 financial crisis.
According to its website, Silicon Valley Bank offered banking services to roughly half of the country’s venture capital-backed technology and life-science enterprises and over 2,500 venture capital firms. Its abrupt collapse sent uproar across the tech industry, Wall Street, and Washington.
Silicon Valley Bank benefits African startups; it is worth noting that it has been increasing its reach in recent years, notably in emerging countries such as Africa.
Silicon Valley Bank, for example, established cooperation with Africa’s largest fintech hub, the Africa Fintech Foundry, in 2020 to provide banking services and support to African fintech businesses.
What you need to know
Let’s break it down a bit, for the past 40 years, Silicon Valley Bank has been home to half of all venture-backed startups. It is now the greatest bank failure since 2008, as well as the second-largest in US history.
Silicon Valley Bank received a Good amount of startup deposits. Its deposits more than tripled between 2018 and 2021.
Startups received millions from investors, which they deposited with Silicon Valley Bank. $SIVB had a lot of client cash and intended to do something with it.
Conventional banking involves accepting deposits and making loans. The interest earned on these loans is how banks make money. Customers, on the other hand, did not require loans because investors continued to provide them with funds.
Rather than offering loans, the bank purchased billions of dollars in bonds over the last few years, using customer deposits as a traditional bank would.
These investments are generally safe, but their value declined because they offered lower interest rates than a similar bond would offer if issued in today’s higher interest rate situation.
Normally, this isn’t a problem because banks keep things for a long time — until they need to sell them in an emergency.
Yet, Silicon Valley’s customers were primarily startups and other tech-centric businesses that had become increasingly cash-strapped in the previous year.
Venture capital funding was dwindling; organizations were unable to obtain fresh rounds of funding for underperforming startups and thus had to pull their existing money, which was frequently deposited with Silicon Valley Bank, which was located in the heart of the tech startup ecosystem.
As a result, Silicon Valley clients began withdrawing their deposits. That wasn’t a big deal at first, but the withdrawals forced the bank to start selling its very own assets to meet client withdrawal needs and that led to the collapse of the bank.
As of the time of writing this article, the US Government announced that all Silicon Valley Bank Depositors will have full access to their funds by Tuesday, March 14, 2023.
The question now is, how will this collapse impact African startups?
Numerous African startups, however, have funds in Silicon Valley Bank because the bank was a lender for startups and required deposits in the bank as collateral.
The bank provided founders with loans against their shares and cashflow loans. Simply put, Silicon Valley Bank was Africa’s favored bank for startups.
The collapse of Silicon Valley Bank would have a significant impact on the tech industry worldwide and extension, Africa.
Many startups depend on the resources and support provided by Silicon Valley, such as access to venture capital, mentorship, and a network of like-minded entrepreneurs.
In terms of the impact on African startups, the collapse of Silicon Valley may hinder the flow of money and resources into the continent.
Nonetheless, Africa is rapidly building its own startup ecosystem, with nations such as Nigeria, Kenya, and South Africa emerging as innovation and entrepreneurial hotspots.
Furthermore, job losses are anticipated as the fallout from the failure of Silicon Valley Bank will shock numerous firms. As a result, there may be a double layoff in Africa’s tech ecosystem.
Generally, the collapse of Silicon Valley Bank will have a tremendous influence on the global tech economy, particularly on African companies.
It is crucial to highlight, however, that Africa is developing its own startup environment and has the ability to prosper on its own.
Don’t miss important articles during the week. Subscribe to techbuild.africa weekly digest for updates