The Fall Of Silicon Valley Bank!

The Fall Of Silicon Valley Bank!

From mass tech layoffs to sudden collapse the tech industry faces yet another challenge.

What is Silicon Valley Bank?

The Silicon Valley Bank viz SVB is the 16th largest bank in the USA that specializes in financing and banking for venture capital-backed tech companies mostly startups.

Why it became the go-to-bank for investors?

· Providing finance to start-ups, a risky affair yet provides steady support.

· Holding surplus cash of the tech companies

What happened?

A collapse! Just when the Titanic was supposed to take the turn, it was hit by an iceberg, that happened with SVB. The bank got hit by the federal reserve.

During the pandemic, there was a flow of start-ups in the tech market. This caused an inflow of funds from various sources, in order to hold the cash for their future expenses SVB came into the picture. The bank supported the start-ups by securing their money for the long run.

Where the SVB invested the secured money in long-term treasuries and bonds. That’s how a bank works! Taking money from one and investing in another.

When the federal reserve hiked interest rates in 2022 to combat inflation, SVB’s bond portfolio began to drop causing no cash on hand because they were tied up in long-term investments.

With inflation at its peak, the tech companies looked upon SVB for their reserve amount as their venture capital started drying up. To cope with this emergency SVB started selling the bonds at significant losses causing distress to customers and investors. And within 48 hours, the bank collapsed! This bank run was outrageous as all the investors wanted their money at the same time closing down the bank.

Who got affected by the collapse?

Large tech companies with significant cash in SVB include

· Etsy,

· Roblox

· Rocket Labs and

· Roku

How the collapse affected Etsy?

Etsy- The e-commerce DIY marketplace works with 5.4 million online merchants worldwide.

Impact

· Around 2,700 merchants — had their payments delayed on Friday after SVB’s collapse.

· Some Etsy sellers decided to put their stores on vacation mode, pausing customer purchases to minimize their financial losses.

· “The delay in deposits came at the most inopportune time for our business: right after a large inventory purchase and right before a move across the country,” Gee a seller of etsy says “I have over 100 orders that have been fulfilled and shipped and have not received payment for.”

Conclusion:

Although it’s unknown whose name will be on the door when SVB’s offices, it’s understandable that so many venture capitalists and tech entrepreneurs are hoping that it will get through this process with little damage.

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