As the financial world is grappling with the fallout of the collapse of Silicon Valley Bank, the lender of choice for tech firms in Israel and the US, one of the lessons learned from the aftermath of the demise is that trust which was built over four decades can evaporate within just a couple of days.
SVB, the preferred lender of tech startups, collapsed on Friday, forcing the US federal government to step in and seize its assets. The failure of the bank sent shockwaves into the Israeli tech industry, fueling concern of furloughs if affected local startups can’t access their SVB accounts to meet payroll in the coming weeks. Then on Sunday night, United States financial regulators reacted swiftly to reassure investors that depositors of the collapsed bank would be protected and fully repaid.
For now, the tech industry and private equity and venture capital firms are breathing a cautious sigh of relief, though questions remain about where they will deposit their funds and who will manage them in the future.
Despite prompt resolution to the SVB collapse, more than the majority of startup founders, or 61% are now considering moving their banking services to a financial institution that they view as a more “stable” player such as the likes of JP Morgan Chase, even though they are not focused on startups, according to the findings of a survey by Startup Snapshot, a data-sharing platform for the Israeli startup ecosystem.
Startup Snapshot founder Yael Benjamin said that “the data highlights the broken trust within the startup ecosystem, both in Israel and abroad.”
“This is evident amongst founders that were affected by the SVB fall, as well as by those that were not affected,” Benjamin remarked.
The survey is based on data collected between March 12th and 13th from 112 startup founders of which 66% are located in Israel, 23% are in North America and 11% are in Europe. Among the participating startups in the survey, about 48% have raised up to $5 million in funds, and 22% raised more than $15 million and up to $70 million in capital.
The survey was prepared in partnership with Intel Ignite, Intel’s scale-up program for Israeli startups; the Zell Entrepreneurship Program at Reichman University; and Consiglieri Ltd., a tech advisory firm founded by law firm Yigal Arnon-Tadmor Levy.
In the survey, some 53% of the founders who have been affected by the SVB collapse responded that they will definitely move their banking relationship to a more dominant bank player and 32% said they will potentially move. Among the respondents who have no ties to the SVB fallout, 27% are definitely seeking to move their accounts to a more dominant bank and 34% stated that they will potentially move.
Driving the breach of trust in the banking system is an overall sense among the majority of startup founders that there is a high likelihood that SVB bankers did know what was coming, the survey showed. When startup founders were asked whether they think SVB bankers knew the risk they were facing, 31% were confident they did and 40% said maybe they were in the know.
While the US regulator response may have provided an immediate solution to the SVB fallout, startup founders cited a number of market challenges the tech ecosystem is expected to face in the coming six months such as a tightening of financial terms from the investor side and more down rounds.
Going forward, the vast majority of startup founders plan to put a focus on risk and asset diversification. About 89% of the respondents said they will diversify their funds across multiple banks, 29% across multiple countries and another 14% across currencies.