HSBC’s last minute £1 rescue deal of Silicon Valley Bank’s (SVB) UK arm is undoubtedly welcome news for many worried leaders following a weekend of upheaval across the UK’s tech sector.
But how did it all unravel for California-headquartered Silicon Valley Bank, which specialises in lending to technology companies, and why was there a major ripple effect on the tech community across the UK and in the North?
On Friday, Silicon Valley Bank collapsed and was shut down by US regulators after failing to raise enough money to plug its losses from the sale of assets affected by higher rates. It’s just a slice of the picture, as customers pulled deposits from the lender in their droves and SVB’s stocks tumbled.
Fears began to mount about the impact on the UK’s tech sector, with both start-ups and scale-up companies reliant on SVB through the lender’s UK arm based in London. With around 3,500 customers, SVB’s UK division reportedly provided banking services for 40% of the UK’s biotech sector.
Tech leaders took to social media to voice their concerns and offer advice, with many unable to access funds. It further propelled fears about the threat of SVB’s collapse to the UK tech sector, potentially thwarting the government’s plans for the UK to become a “science and tech superpower by 2030”.
It sparked a rapid movement within the tech community, with more than 200 tech leaders uniting in a bid to urge Chancellor Jeremy Hunt to consider government intervention in an open letter about many companies potentially becoming “technically insolvent”.
Dan Murray-Serter, founder of healthtech start-up Heights, said he woke up to the news that his company’s bank account had “gone under” on Friday.
Alongside dozens of tech leaders, on LinkedIn he detailed how he launched a WhatsApp group named ‘Save UK Tech’ to rally the tech community, working “tirelessly” to gather vital information to relay to the government.
Working “at pace” over the weekend ahead of potential chaos before trading resumed on Monday, the government and the Bank of England held crisis talks in a scramble to find a resolution.
Shockwaves rumbled across the North’s tech community. Moving quickly on Monday to reassure investors, Manchester-headquartered ecommerce retail giant THG and Stockport’s musicMagpie released statements to the London Stock Exchange that there was “no exposure” or SVB’s closure would be “unlikely to have an impact”.
At the eleventh hour, HSBC saved the day as the government and the Bank of England worked to facilitate a private sale of Silicon Valley Bank UK. “Normal operations” will now resume at the UK arm of the bank, with deposits protected at no cost to the taxpayer.
Following the announcement that @HSBC_UK has acquired SVB UK, we’re resuming normal operations from today. Our clients should not notice any significant changes, however, there may be short delays across the next few days as we return to business as usual. Thanks for the support
— Silicon Valley Bank UK (@SVB_UK) March 13, 2023
Northern tech leaders react
Manchester-headquartered success story AppLearn was already on alert last Thursday when the SVB’s stocks began to plummet. SVB was one of several investors involved in the digital adoption firm’s significant financing last year.
“We always tend to have three scenarios. If a doomsday scenario were to happen, like a bank collapsing which is quite an extreme and rare one, we know what to do and when to do it. We try to have all of our risks spread as much as we possibly can,” Andrew Avanessian, CEO at AppLearn, told Prolific North.
“Although we raised a significant amount of money from SVB, we have that money spread across a number of different bank accounts in order to mitigate any scenarios that a bank was to collapse or split.
“Especially because SVB lent to tech businesses and early-stage tech businesses. You could argue they’re more vulnerable than the likes of Natwest or HSBC who tend to lend in a more traditional way. Whereas tech and scale-up businesses, they’re high risk.”
The board closely monitored the situation unfolding on both sides of the Atlantic, as around 60% of the company’s revenue comes from its US office in Boston.
“On Friday, we took steps to move some additional funds outside of SVB, to make sure that we’re in a safe position and we weren’t affected by it. Where we landed was a very limited exposure to it.”
Although he welcomed the “good news” about HSBC’s takeover, the UK division is in a “stronger position” than the US entity. He’s hopeful though, following an announcement by the Federal Deposit Insurance Corporation (FDIC), that all US firms will be able to access funds.
“It was always going to end in good news. When I sat with my fellow directors having a conversation about it, the likelihood of SVB being taken over and being backed by the UK government was extremely high. But what you can’t do is wait and see.”
He had conversations with various tech companies across Manchester that had “a lot more exposure” to the situation than AppLearn did.
“They couldn’t get their funds out as quickly as we did. They were a bit more concerned until the HSBC news.”
