Tech startups have received a big setback, with the biggest US bank failure since the 2008 financial crisis. The Silicon Valley Bank collapse triggered a crisis for tech startups, sounding alarm bells about a potential doomsday of mass layoffs again and the demise of hundreds of startups.
Related: Tech Industry Slump Causes a Blow to Workforce and Brand Value
Silicon Valley Bank, a nearly four-decade-old financial institution, was founded to focus on the needs of startup companies. Its main strategy was collecting deposits from businesses financed through venture capital, and the wave of computer tech startups during the dot-com bubble provided an influx of business for the bank.
Following its bankruptcy, SVB had over $200 billion in total assets, with more than $175 billion in total deposits. Some 2,500 venture capital firms had accounts at this bank, while angel investors and operators — mostly solo and smaller businesses — also banked extensively at SVB.
In early March of 2023, a combination of factors, including poor risk management and a bank run driven by tech industry investors, caused the bank to collapse, and the use of social media, particularly Twitter, was reported to be a factor in both the initial bank run and its aftermath.
Over 5,000 CEOs and founders representing over 400,000 workers had signed a petition started by Y Combinator, an American tech startup accelerator used to launch successful billion-dollar companies, appealing to the US Treasury to backstop depositors, advocate for “stronger regulatory oversight and capital requirements for regional banks” and investigate “any malfeasance or mismanagement on the part of SVB executives leading to this failure.”
Days after, the US government announced that all of Silicon Valley Bank's customers — whether they were insured or not — will have full access to their deposits. This is a proactive response reflecting widespread fears that SVB’s collapse could lead to a domino effect.
Signature Bank, a New York-based lender that focuses on the crypto market, was also shut down by New York regulators, following the failure of another crypto-focused bank, San Diego-based Silvergate.
This age of social media and digital transactions has made circumstances such as bank failures happen from days and weeks into hours and minutes, and banking — which is a sector known to drive tech value — now brings great uncertainty to the table.
Observing the ongoing series of events, the tech industry seems to be in a post-pandemic downfall, and its recovery — both from big and small players — will require a strategic play to sustain long-term operations.
Tech startups are specifically seen as an integral aspect of prosperity and economic growth and are the backbone of innovation in any country, ranging not only from within Silicon Valley itself but to tech communities globally that depend now more than ever on technology innovation.