The European tech startups have found themselves at a standstill amid the worst banking crisis since 2008.
- The Silicon Valley Bank was a crucial player in the rise of startups across the globe.
- Its collapse, coupled with the fintech reckoning, has effectively paralyzed the sector.
- Theoretically speaking, it would essentially be a herculean task to fill the shoes of SVB as the bank was remarkably close to the venture capital market.
The banking sector is in its worst shape since the 2008 financial crisis. It is causing irreparable damage to every sector. And even though the main failure is on a different continent, the European tech startups are caught in the crossfire. Between the fintech reckoning and the banking crisis, the EU’s tech startups are in a critical position and under massive pressure to keep their heads above the waters.
From the U.S. with a Crisis
The Silicon Valley bank wasn’t your run-of-the-mill bank. It played a crucial role in the rise of startups all over the world, especially fintech startups and other tech-oriented ones. Its role was essentially threefold: bank, networking community, and venture capital firm. Not only did the bank plan to invest more than $500 million in technology and life science startups by 2024 in Ireland, but it also was discussing financing local companies in the Netherlands.
SVB established a network of affiliated companies and offices throughout Europe’s tech industry. Additionally, a large portion of its clients came to the institution because they believed traditional lenders were ill-equipped to meet the unique needs of the technology sector. The bank sponsored events and groups attempting to diversify the UK tech sector, in addition to allowing tech companies with unusual financial structures to open accounts.
Where It All Went Wrong
A poor wager on long-dated US bonds was the catalyst for Silicon Valley Bank’s problems. Rising interest rates did indeed cause a decline in the bond’s value. Depositors withdrew their money amid growing concerns regarding the bank’s balance sheet. As a result, the sector witnessed the ending of low-cost loans that tech companies became accustomed to over the past ten years. Not to mention the reduction in available funding.
It seems the sector is at somewhat of a standstill. In 2022, the European tech sector lost more than $400 billion in value, and some businesses saw their valuations fall by more than 85%. There hasn’t been much relief this year either, as layoffs at both major tech companies in Europe and local startups continue.
A bank would need much more than deep pockets to go down the rabbit hole because it would need to be sufficiently close to the entire venture capital market and have the capacity to perform due diligence. Even if they were willing to take the risk, they would probably struggle to match Silicon Valley Bank’s extensive knowledge of the startup ecosystem.
It doesn’t look like 2023 is startups’ year, from the ever-escalating fintech reckoning to the crumbling of THE bank for startups. SVB promoted a certain financial model that catered to the mass, and sometimes hap hazardous, creation of startups. And considering it had established certain roots in the EU, the European tech startups are getting the brunt of the damage. Considering the dire situation the banking world is in, it is very unlikely any bank will stick out its neck for these companies regardless of profit margins.
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