UK chancellor Jeremy Hunt was on Saturday locked in talks over how to stop the collapse of Silicon Valley Bank from dealing a heavy blow to Britain’s tech sector.
More than 200 UK-based tech company executives have urged Downing Street to step in, warning that many companies faced an “existential threat” because they banked with the UK arm of SVB.
Prime minister Rishi Sunak has said he wants Britain to be “the next Silicon Valley” but the bank’s crisis risks seriously damaging that ambition.
The UK Treasury said Hunt had spoken to Andrew Bailey, Bank of England governor, while Andrew Griffith, City minister, is holding a round table meeting with industry representatives on Saturday afternoon.
Acknowledging the problem, the Treasury said: “The government recognises that tech sector companies are often not cash flow positive as they grow, and that they rely on cash on deposits to cover their day-to-day costs.”
One London-based venture capitalist said: “There is growing confidence that the UK government will step in with liquidity measures on Monday.”
The Bank of England moved to put the UK arm of SVB into insolvency late on Friday following the shutdown earlier in the day of the bank’s US entity, but said it had “a limited presence in the UK and no critical functions supporting the financial system”.
On Saturday around 210 start-up founders and leaders signed an open letter to Hunt, warning that “the majority of us as tech founders are running numbers to see if we are potentially technically insolvent”.
The signatories said they employ more than 10,000 people and have raised venture funding totalling £3.5bn.
“The majority of the most exciting and dynamic tech businesses bank with SVB and have no or limited diversity in where their deposits are held,” the letter said.
“This is a real moment of crisis for British start-ups,” said Dom Hallas, executive director of Coadec, a lobby group representing UK-based tech companies. “Without a clear way forward by Monday the risk will grow — it’s critical that government has a plan in place by then.”
Signatories to the letter include executives from Tessian, Beamery, Curve and bit.bio, companies that have each raised funding in excess of $100mn, as well as several smaller firms.
The letter added: “The Bank of England’s assessment that SVB going into insolvency would have limited impact on the UK economy displays a dangerous lack of understanding of the sector and the role it plays in the wider economy, both today and in the future.”
Daniel Shakhani, founder of Salary Finance and an investor in a series of companies that have received SVB funding, said: “This is a crisis that requires UK government involvement as it’s not clear what the outcome is going to be for the UK entity, which could be left orphaned if SVB US gets sold.”
Hephzi Pemberton, founder of data consultancy Equality Group, said that 90 per cent of its funds were frozen in SVB UK. “We are scrambling to make payroll for March and it will involve a lot of manoeuvring to make it happen,” she said.
However not everyone in the tech industry was supportive of the push for government aid. Some were privately concerned that even asking for help might fuel further panic and others argued that bailing out banks would create a “moral hazard”.
“Over the past decade, tech companies have indulged in a level of excess that makes the excesses of the pre-2008 bankers pale in comparison,” said Roxana Mohammadian-Molina, a London-based tech investor. “If there was little public support for rescuing privately owned financial institutions back in 2008, there is even less support to bail out them and their big tech customers now amid the cost of living crisis.”
As late as Friday, SVB UK had said it was an “independent subsidiary” of US-based SVB Financial Group with its own balance sheet and “ringfenced” funds. But it was forced to apply for £1.8bn of liquidity that day as panic spread among tech companies and their investors.
Companies which are unable to access the funds trapped in SVB’s UK arm may themselves go under, the executives said, warning of a “meaningful” increase in unemployment as the impact cascades through the UK economy.
Officials are canvassing tech companies to better understand the scale of the problem and potential solutions, according to people familiar with the discussions.
The Treasury said: “We are working with the Bank of England to ensure that Silicon Valley Bank UK’s failure is managed smoothly, and that any disruption is minimised.”
The Bank of England declined to comment on the possibility of additional support for clients with large deposits at SVB.
Shadow chancellor Rachel Reeves tweeted that the situation was “really worrying for many firms”. “The chancellor should urgently assess the scale of risks to UK firms posed by SVB’s collapse, and must work with firms to manage those risks,” she said.
Insolvency procedures are the BoE’s preferred resolution strategy for smaller banks which “do not supply transactional accounts or other critical functions to a scale likely to justify” the use of resolution measures, which ensure a bank can keep doing its core business while a plan for its wind-down is worked out.
Unlike a regular corporate insolvency, a bank insolvency process prioritises paying depositors the £85,000 protected by the FSCS “as soon as is reasonably practicable” with a target of seven days. The money can be raised through an industry levy “if necessary” and later recouped from the insolvency as assets are sold.
The bank liquidator’s second objective is to achieve the best result for the bank’s creditors as a whole.
Additional reporting by Harriet Agnew
