Crash sends also Robotic Start-Ups scrambling

Robotics start-ups also fear for their existence as Silicon Valley Bank's collapse continues to cause turbulence. Last Friday, the California Department of Financial Protection and Innovation (DFPI) took control of the institution and its businesses after massive customer deposit withdrawals caused insolvency. Now, start-ups, in particular, are worried about their unsecured deposits worth millions of dollars and their future.

Silicon Valley Bank has been around for 40 years and is known as the 16th largest bank in the United States. With total assets of $209 billion, it is roughly ten times the size of Munich's Stadtsparkasse. The bank's clients mainly consist of technology companies, start-ups, venture capitalists, and investors who often required start-ups to "park" their money at SVB during financing rounds. This has caused the bank to be effectively bankrupt now.

On Thursday, SVB's customers withdrew a total of $42 billion, causing the institution's insolvency. By the end of the day, the bank was missing approximately $958 million in cash. These pieces of information come from the DFPI's order, which declared the bank insolvent and took over its businesses on Friday.

Technology funds like Peter Thiel's Founders Fund, Coatue Management, and Union Square Ventures had urged their partners to withdraw their deposits on Thursday. SVB holds business and salary accounts for Silicon Valley employees, with long lines forming outside the bank's branches.

Investors fear a domino effect following Silicon Valley Bank's (SVB) insolvency, with possible effects on the start-up scene and other banks. Affected bank customers anxiously wonder when they will receive their money back. Despite efforts by authorities and the US government to stabilize the situation, there is concern in Silicon Valley that numerous start-ups with SVB could be dragged down.

Background to the collapse

The cause of the collapse of Silicon Valley Bank was doubts about its liquidity. On Wednesday, the bank unexpectedly announced that it would offset an investment loss of about $1.8 billion with the issuance of a new share package worth $1.75 billion. A financial investor was also set to acquire common stock worth $500 million. This news caused a 60% drop in the SVB Financial Group's stock price and had repercussions throughout the banking sector. However, SVB had already faced problems before. The increase in US interest rates and its specialization in the start-up scene resulted in customers requesting fewer loans and instead using their own reserves, causing them to withdraw their money from the bank. Moody's, the rating agency, had also considered a possible downgrade of SVB. The bank tried to avoid a liquidity squeeze with "strategic measures" by selling almost all marketable bonds worth $21 billion and accepting a loss of $1.8 billion. SVB sought to offset this loss by issuing new shares, triggering the stock price decline. Moody's confirmed the feared downgrade on Friday. SVB is now the largest US bank failure since Washington Mutual collapsed in 2008.

Impact on robotics startups as well

SVB was willing to take a risk and therefore also financed RaaS (Robotic-as-a-Service). This is according to a 2020 report published by the bank that can be downloaded as a PDF here. The bank failure could turn into a bigger problem for the startup sector. While deposits are insured per U.S. law, they are only up to $250,000 each. However, many business customers had millions in the bank - what is left of them now remains to be seen. For start-ups, this could mean that they will no longer be able to pay the next round of salaries. There is now also no money for the operating business. In addition, young startups in particular will find it difficult to secure follow-up financing in light of the slowing tech boom and higher interest rates.

German start-ups affected

Startups in Germany are also affected by the bankruptcy, Handelsblatt reports. Among them, it said, are companies such as HelloFresh and Lilium. The Federal Financial Supervisory Authority (BaFin) confirmed to the Wall Street Journal that it was in contact with SVB's German subsidiary.

Domino effect feared

SVB's insolvency could drag hundreds of small tech companies down with it, Garry Tan, president of startup incubator Y Combinator, warns on U.S. broadcaster CNBC of a domino effect. He estimates that more than 1,000 startups are affected by the bank failure and that around a third of them will soon face existential hardship if they cannot get their money.

US government seeks reassurance

In Washington, the US government is therefore trying to calm the situation. On Friday, U.S. Treasury Secretary Janet Yellen convened an emergency meeting with the authorities involved. She has "full confidence that the banking regulators are taking the right measures," Yellen said on Friday. Government economic advisers pointed to new rules introduced after the 2008 crisis to make the banking system less vulnerable overall.

The impact of the SVB failure on the start-up sector will be felt for some time, and it remains to be seen how the situation will evolve. One possible solution could be for other banks to participate in the takeover of SVB and thus compensate for at least part of the losses. For many startups and the entire tech sector, the situation remains uncertain and challenging.