‘Lungs of the startup world’: bank fall upends most Silicon Valley industries

theguardian.com:

S tartup founders, venture capitalists and aspirational entrepreneurs descended on Austin on Friday for the annual South by Southwest conference as they do every year. But as the day wore on, a sense of fear and confusion began to take hold amid the usual energy and buzz in the Texas capital.

Silicon Valley Bank (SVB), a financial institution that had become the go-to bank for nearly half of all venture-backed tech startups and many in the healthcare sector, was collapsing. Major venture capital firms and startup incubators including Y Combinator and Founders Fund had advised their founders to reduce exposure to SVB. The industry began to panic.

In the hours and days that followed, the situation amplified. Federal regulators took over SVB and shut it down by the afternoon, followed by an intervention by the Biden administration to protect depositors over the weekend. The financial reverberations spread around the globe and by Tuesday, the justice department was reportedly investigating.

Neal Mody, a Seattle-based venture capitalist and founder of Zoic Capital, said he faced a barrage of questions about the bank while speaking at a SXSW panel on Friday and spent the rest of the evening on the phone trying to assuage panicked business partners.

“You saw a lot of confusion,” said Mody, adding the topic ended up “dominating” much of the conference.

The largest bank collapse since the 2008 crisis has sent shockwaves around the world. But in Silicon Valley, it’s also had a more nuanced effect on the regional industries that boomed around the bank. SVB funded a wide range of clients in Silicon Valley. Its demise affects not only tech companies but others that blossomed alongside the startup scene – including non-profits, small