The impact of the Silicon Valley Bank collapse on Australian startups

With inflation, a skills shortage and now the Silicon Valley Bank collapse, the startup community in Australia has taken another big hit.

As the second biggest bank failure in US history, there have been some startups in Australia that have felt the impact of the collapse.

Rehan D'Almeida, General Manager, FinTech Australia said the collapse of SVB is an added stressor to what is a challenging period for the startup and fintech community.

He said, “The impact on Australian fintech companies seems to have been limited but we continue to monitor the situation.

'There are ramifications that may emerge over the course of the coming months. However, the US Government has confirmed that all depositors will have access to all their money.”

Venture capital firm AirTree has been affected with 28 percent of its portfolio companies having a SVB account.

In a LinkedIn post they said, “It’s been a sad and challenging weekend for founders and the startup ecosystem following the news of the collapse of Silicon Valley Bank. SVB has been a great supporter and valuable partner to the ANZ startup ecosystem for many years.”

Other Australian companies like Nitro Software said it had US$12.2 million in SVB and Siteminder had $10 million that it couldn’t withdrawn and a $20 million revolving facility.  

Last weekend, SVB, a major lender to startups in the US and across the world announced a loss of US$1.8 billion from a sale of investments.

From this loss, it planned to launch a capital raise but instead investors and depositors panicked and withdrew $42 billion which caused the collapse and the bank to be shut down by regulators.

The US federal government has stepped in and announced that customer deposits in the bank would be protected.

Perhaps for the first time in Australia's ecosystem’s history, it may raise questions for venture capitalists around their processes and how they are managing their portfolios, D’Almeida said.

“Equally, it’s a rare opportunity for our funders to discuss how world-class their processes are, and how they contrast to practices seen overseas.”

Friska Wirya, founder at Aussie startup Fresh by Friska said this collapse means it will be harder for startups to raise money.

“The VC industry is not that big anyway in Australia, we are already a conservative and risk averse country. This will make us clam into our shells a bit more,” she explained.

“They'll have need to have a lot more runs on the board in order to attract that VC funding in the future.”

A pulse check in the Australian startup community

In terms of how the startup community is feeling, Kate Pounder, CEO at the Technology Council of Australia said she is getting mixed responses from these founders.

She said, “People are grateful that the impact on Australian firms was more minimal."

Pounder spoke to some tech startups impacted and they were grateful for the US federal government stepping in to protect customer deposits at SVB. 

“They are grateful that this announcement has been made swiftly because that will provide peace of mind to those firms. They were concerned if they couldn't access their bank account," she added. 

There is a strong bond within the startup community in Australia and people have been working behind the scenes to keep companies afloat, Pounder explained.

“As soon as we saw Saturday morning, that this situation was emerging, people have been working behind the scenes all weekend, just to try and assess that impact in Australia and to think about what we might need to do locally,” she said.  

“That has also given people confidence, they knew there was those networks that could collaborate behind the scenes to try and manage the situation as it arose. But we all feel for any companies that got caught up in this and investors that got caught up in the situation.”

Pounder said startups should now be thinking about the medium to long-term effects.

She said, “There had already been a contraction in investment, we know these vectors in the tech sector are creating the next generation of companies and maintaining productivity which we need right now in an inflation environment.

“Making sure we're maintaining that medium to long term confidence in investing will also be important.”

Lessons for Australia

Rachael Greaves, CEO at Castlepoint Systems said the SVB news does have some lessons for us, even though we are halfway across the world.

She said, “The US Treasury, Federal Reserve, and Federal Deposit Insurance Company have stated that depositors will be made whole, so the collapse of the bank is less about immediate losses and more about a probable change in risk appetite.”

We have always taken an approach of targeting profitability, balanced with the need to support our rapid growth, which has insulated us from many shocks over the last five years, Greaves noted.

“More tech startups are now adopting this strategy, and can afford to, as the pandemic has made more efficient spend possible, no more prestige accommodation costs; accessing incredible talent in the regions; growing globally via Zoom.”

“This latest scare might be the impetus for even more startups and scaleups to rethink their runways,” she added.

Pounder said startup founders are naturally resilient and it's often the next generation of innovations that come out of the mountain.

“We certainly want to get our arms around the founder community at the moment because it is a stressful time. Obviously, it would be a negative thing for the country and for the community if we did see people being deterred from starting companies.”

Wirya said while times may be uncertain, there is no need to fear disruption and change.

“There are opportunities in complexity and if you can simplify the complexity for people, you'll be able to find your feet,” she said.