Silicon Valley Bank: Start-ups welcome the warm embrace of Britain’s big banks
The collapse of SVB UK is causing start-ups to reevaluate their banking priorities, Charlie Conchie writes
Among the backslapping jubilation of HSBC’s rescue swoop on Monday morning, a singular voice fired a sour warning into the ether.
Loss-making start-up the Bank of London had over the weekend launched a bid to buy Silicon Valley Bank’s stricken UK arm but had been snubbed for the security of one of Britain’s big boys. And it was not overjoyed.
“It cannot be right that once again the heritage banks that have provided a poor service to UK entrepreneurs over many years benefit from their already dominant position,” the firm said in a statement.
This was a “missed opportunity” to shift power further away from Britain’s entrenched high street banks, Bank of London said.
But the uncomfortable truth facing Britain’s insurgent lenders is that the start-up community was crying out for the comforting embrace of one of Britain’s big four banks. HSBC’s involvement has ensured that start-ups did not follow through with their plans to pull cash from SVB UK as soon as possible this week.
“It would have been different if [the buyer] had been Bank of London, where no one’s really heard of it,” says Ashley Ramrachia, chief and co-founder of Manchester-based start-up Academy, which had all its cash tied up in SVB UK.
“I don’t think that would have stopped the blood loss.”
‘Gratitude to HSBC’ after SVB swoop
Like many start-up founders, Ramrachia was in the war room over the weekend plotting how to delay invoices, make payroll at the end of this month and get hold of his cash by any means possible.
In a Whatsapp group of other start-up founders, he says many firms that transferred cash on Friday say they have now pulled back from the move due to the involvement of a big name.
“I’ve seen plenty of activity in the channel saying we’ll reverse transfer, or we’ve cancelled it or we’re only going to move part of the funds. So there’s this desire to show some solidarity, some gratitude to the fact HSBC stepped in, and not to rush to the door anymore,” he told City PM.
The sentiment goes to the heart of what triggered the fierce lobbying campaign to save SVB UK late last week. Tech figures had been making increasingly impassioned pleas to regulators to step in and steady the bank, and late on Friday evening the Bank of England announced it would place SVB UK into an insolvency process.
Included in its statement, however, were comments that suggested to many that the bank would be left to die.
“SVB UK has a limited presence in the UK and no critical functions supporting the financial system,” the Bank of England said.
That statement – described as “frankly unhelpful and worrying” by one tech chief to City A.M. this week – ignited concerns in the sector that they were going to be hung out to dry by regulators. That fear has now taken root in the minds of many start-ups: bank with a lender outside of the big four, and your money is not guaranteed.
‘Safety and security’
Otta, a UK-based tech jobs start-up, says it is now conducting fresh levels of due diligence on its banking partners and would have been more sceptical had Oaknorth – another of the fintech bidders – won the race to buy SVB UK.
“Undoubtedly, I would have asked myself, my co-founders and our investors, what do you think about a bank like Oaknorth? Should we be doing more diligence? I guess we would have done more diligence,” co-founder Sam Franklin tells City PM
“Oaknorth’s balance sheet is nowhere near as sizable as HSBC’s, and with a strong balance sheet comes strong security for deposits.”
Franklin says that the scramble is playing out on the other side of the pond too. A US investor in his firm has been circulating a list of global “systemically important banks” where start-ups should consider placing their cash for maximum security.
The chief of pan-European venture capital firm OTB Ventures, Adam Niewinski, tells City A.M. the episode at has underscored the two fundamental rules of business banking – “you can basically take credit pretty much from anyone who is offering you the lowest interest rate.. but you keep money in at least two large, stable banks which are systemically important.”
HSBC, basking in positive press and a newly expanded client base this week, has lent into that sentiment in its first communication with SVB UK’s customers.
“Your deposits are safe and your loans are supported,” the bank said. “Your business is backed by the strength of our global bank, and we’ll provide you with the continuity and security that’s critical to every business.”
A weekend of existential dread means that start-ups are rather leaning into that “continuity and security” too.