How SVB’s Collapse Impacted The Black Tech World
After days of turmoil, Silicon Valley Bank (SVB) customers are now able to access their money held in the bank.
What happened to SVB?
It took just 24 hours for US tech’s favorite bank to fall from grace. SVB served nearly half of US VC-backed tech startups and investors, according to the FT.
But interest rates rose, bond values shrank, and with the tech industry slowdown, deposit withdrawals rose too.
In a crude oversimplification: companies and investors pulled their money out of SVB amid economic uncertainty. To meet depositor demands for cash, SVB sold bonds at a $1.8 billion loss and turned to investors to offset that loss. The capital call failed. Investors told their portfolio companies to grab their cash and run, and SVB struggled to keep up.
On Friday, 10th March, US regulators shut down SVB in the most significant failure of a US bank since 2008. Regulators also closed New York-based Signature Bank. Effects rippled across the tech industry and beyond.
Impact on Black founders and VCs
Black founders were among those hard hit by the bank’s rapid demise.
St Louis-based founder Ciara May told Techcrunch she had just landed in Atlanta when she started receiving frantic emails from investors about SVB.
Her hair care company Rebundle had more than $250,000 in its SVB account. At SVB, company funds of over $250,000 were uninsured, so May was desperate to move her money into another bank.
“I guess wires take time, like, to get anything that would be uninsured out,” she told TechCrunch. “I never thought about the need to have more than one bank account for a company.”
VC firm Harlem Capital boasts an impressive portfolio – 91% diverse founders, 61% Black/Latino founders – but it turned out that 30% of its portfolio banked at SVB.
“Today was probably the most stressful day I’ve had as an investor,” Harlem Capital co-founder and managing partner Henri Pierre-Jacques tweeted on Friday.
Black-owned VC firm Reign Ventures also tweeted SVB’s collapse forced it to cancel its events at the South by Southwest (SXSW) conference.
Read: SVB ‘Wokeness’ Rhetoric Is A Distraction From The Real Issues Diverse Founders Face
The Plug also reported that SVB helped to fund several initiatives supporting the Black tech ecosystem, including the State of Black Venture report, several accelerators and programs, Black founder events and more.
Not just rich folk
Pariss Athena, founder of the Black Tech Pipeline, reminded followers that SVB’s collapse isn’t just problem for the 1%. Many small businesses and organizations were impacted too.
As Brava Leaders founder Karla Monterroso explained on LinkedIn: “Non-billionaire, non large business owner, gig economy, artists, non-profits, and non-rich people will be hurt.”
For example, Monterroso details the potential impact on the Bay non-profit ecosystem. “SO many Bay Area rich folks gave to DAF’s and not directly to non-profits. Those disbursements were the life’s blood of many places. If the Fed is only going to cover $250k, lots of NPO/NGO closures and difficulties coming.”
“Seeing so many trash, inaccurate takes on who are SVB customers,” Tracey Hobbs also tweeted. “Shifterr is a customer of SVB.. a super early-stage startup founded by me, a Black woman who is obviously not a one-percenter.”
James Oliver, the Atlanta-based networking app Kabila, told Techcrunch he had a few thousand in SVB. “It’s everything to us because it’s all we got.”
He requested a transfer of his funds as soon as news of SVB shutting down hit the wires Friday but worried about the ability to pay his employees as well as raise future funds.
“We still have to raise half a million dollars,” he said. “It’s already hard enough as it is as a founder, 10x harder as a Black founder, but now, does that mean I can’t even go raise money? I don’t understand what all this shit means.”
Rescue Deals
Over the weekend, the US Treasury agreed on a rescue deal, which from today, ensures all Silicon Valley Bank (SVB) and Signature Bank depositors are fully protected.
This includes those with deposits above the $250,000 cap on guaranteed deposits. They also confirmed that taxpayers would not bear any losses. Shareholders in the bank and some unsecured creditors aren’t protected by the guarantees.
Similarly, in a last-minute deal, HSBC bought the UK arm of SVB for just £1 ($1.21) – again protecting depositors’ money.
These moves bring a sigh of relief from startups, but the saga is far from over, as many ask whether SVB’s problems point to a bigger problem.
