What does the collapse of Silicon Valley Bank mean for the UK tech market?

Welcome to the second edition of ‘Building Teams Powering Growth’, where we will look to bring to light the impact of the collapse of the Silicon Valley Bank on the UK tech scene. 

As one of the biggest bank failures and biggest (and quickest) bank rescues, the situation highlighted the fact that banks themselves are unstable. This instability should be built into your business model but organisations notoriously perceive that banks should be able to manage risk themselves. 

What is the Silicon Valley Bank (SVB)? 

The Silicon Valley Bank largely funded technology start-ups, which usually struggled to get loans from one of the big four banks. The SVB specialised in Venture Capital (VC) investments and the firms that are backed by the VCs. The bank gained popularity as interest rates were so low that investors felt it was not worth putting more into classic savings so invested in SVB as a means to make big wins. SVB was essentially being used as a parking spot for funds. 

The collapse worried many investors after they couldn’t access their deposits, following a run on the bank in the US, after it invested in US government bonds, that went down in value following the increase in interest rates. 

Silicon Valley Bank UK was bought by HSBC for just £1 after intervention from the Government and Bank of England following the collapse of the bank in the US.  

Why did it collapse? 

The decline in the value of US government bonds led to a decline in confidence within the US market. Despite strict regulations following the collapse of Lehman Brothers and the 2008 financial crisis, the bank was small enough to not have to comply with many.  

As depositors began to withdraw money in the US, and the bank started to sell bonds, the same started to happen in the UK, despite the UK branch being profitable and within UK regulations. 

Due to the UK branch being profitable, being sold to HSBC was said to be ‘more preventative’ (BBC) than reactive. 

Why was it important to Tech startups? 

SVB was important to the UK tech sector, as it provided funding for around 3000 customers, for companies which would normally struggle to get loans from bigger banks, due to the fragility of start-ups.  

Their fragility and the inability to raise funding and access their accounts could have caused many of the companies banking with SVB UK to fail.  

With the harsh economic climate and the UK narrowly missing a prediction of a recession in 2023, after previously being the only country in the G7 to do so, would mean that companies that could have been able to survive wouldn’t have.  

The tech sector in the UK has been valued at $1 trillion, with London being called the tech hub of Europe, (Startup Genome Report) having stability and investment is crucial.  

Why has HSBC taken SVB UK? 

HSBC has taken on the UK branch of SVB and its customers due to the nature of aligning with their strategy of growth within the ‘high growth industries’ (Financial Times) such as the technology sector. Along with this, there was simply little interest from other banks to take it on.  

What does this mean for the future of UK tech? 

A lot have questions have been raised about the banking regulations both in the US and UK markets, although there was relief that a deal was made, with the government emphasising no taxpayer's money was used and the deposits of all customers were safe.  

Despite the valuation of the UK tech market being so high, 7 years after Brexit, the competitive economy that was promised hasn’t been seen yet.  

The poor economic climate, the end of free movement within the EU and lack of investment have all been factors negatively affecting the tech sector. Despite this, in 2022 there were 2 million vacancies advertised and the digital economy accounts for 14% of the UK workforce. (Tech Nation). 

The outlook is positive, following the March Budget, which looks to increase investment within the tech economy, as well as a new quantum strategy which will invest ‘£900 million in new UK computing capabilities’ (Tech UK). The instability of banks will always play a huge factor in the success of businesses and countries but it’s how the organisations themselves deal with that potential uncertainty which will be the make or break. 

And here’s for something extra….

Cybersecurity Basics: Understanding the Basics of Cyber Threats and Protection

> https://www.annapurnarecruitment.com/cybersecurity-basics/

Release at pace with test automation: What, why and how to measure success?

> https://www.annapurnarecruitment.com/release-at-pace-with-test-automation/

Three Key Lessons When Leading Through Change

> https://www.annapurnarecruitment.com/three-key-lessons-when-leading-through-change/

ERUPT: Excellence in Leadership

We are delighted to announce our 6th conference, which will be live on November 2nd 2023.

ERUPT will focus on how organisations are navigating the uncertainty, challenges, opportunities and growth trajectory over the course of 2023 and beyond. 

Sign up free here: https://www.goerupt.com

About Annapurna

At Annapurna, we are focused on building teams, powering growth. 

We provide the highest quality values-led recruitment service delivered by the best consultants, utilising a search methodology derived from a passion for innovation, thought leadership and outstanding corporate social responsibility.

We are truly passionate about opening up opportunities that will help you grow and sustainably scale using data-driven decision-making.