The collapse of Silicon Valley Bank has sent shockwaves through the Australian tech sector, but industry leaders and government are confident that local exposure is limited after US regulators stepped in to stem the losses.
Silicon Valley Bank, which largely served startups and venture capitalists, was shut down by US regulators on Friday (Saturday AEST) after a run on deposits sparked by a surprise capital raise on Thursday.
The collapse – which is second biggest bank failure in US history after Washington Mutual in 2008 – left startups in Australia scrambling to recoup the $250,000 initially guaranteed by the Federal Deposit Insurance Corporation (FDIC).
But by Sunday night (Monday AEST), the US Department of the Treasury and the Federal Reserve had stepped in to ensure depositors “have access to all of their money starting Monday, March 13” (Tuesday AEST).
Additional funding has also been made available to eligible depository institutions to “help assure banks have the ability to meet the needs of all their depositors”, suggesting the US Treasury is concerned about a ripple effect.
“Today we are taking decisive actions to protect the US economy by strengthening public confidence in our banking system. This step will ensure that the US banking system continues to perform its vital roles of protecting deposits and providing access to credit,” the regulators said.
Tech Council chief executive Kate Pounder has welcomed the move, telling InnovationAus.com that the “very swift and certain intervention” will reduce the impact of SVB collapse for the Australian firms that have been caught up.
She said that, based on conversations with major VC firms before the US Treasury announcement, the “majority Australian companies weren’t banking with SVB” or had managed to transfer funds out before the collapse.
For the “minority of firms [that] did have deposits there”, the peak industry body for the technology sector was initially worried about the liquidity of local firms that had “significant deposits” with the bank.
“Thankfully in Australia, the majority of firms are probably not going to be directly affected. Now with this new announcement, of those that were, this will resolve the deposit risk, so that’s really welcome,” Ms Pounder said.
“We’ll keep doing that assessment though because obviously people could also have had financing through SVB. So, we’ll just try and understand if there are any other short-term impacts and also monitor any longer-term effects.”
Major Australian venture capital firms, including Blackbird, AirTree, Square Peg and Main Sequence, are understood to all have portfolio companies that have been exposed in the collapse, although to what extent is unclear.
Sydney-based AirTree Ventures said around 28 per cent of its companies have a SVB account but that the risk is “minimal” for the majority. It is now working with founders to “manage risks and next steps”.
Main Sequence Ventures, meanwhile, has one unnamed Core Fund 2 company with “substantial assets” in SVB and that firm had only some success transferring funds out last week, InnovationAus.com understands.
Assistant Treasurer Stephen Jones is also reportedly unconcerned by the impact of the SVB collapse based on initial advice, telling an event hosted by publisher Conexus Financial on Monday that Australian business face “very, very limited” risk.
Treasurer Jim Chalmers on Sunday said the government was “closely monitoring the situation and potential impacts for Australia caused by the collapse”.
The Tech Council, which is still assessing the full impact of the collapse on its members, is now closely watching the longer-term “impact on investment” given the contraction that has already occurred in recent months.
“Startup and scale up firms are a really important part of the US economy as well as Australian and other economies. They’re a big source of jobs, growth, innovation and productivity, and all of those things are particularly vital in an inflationary environment,” Ms Pounder said.
“So that’s a really key thing now is monitoring how it effects those ongoing investment levels and confidence. It’s sort of why we’re more and more seeing the timeliness of the National Reconstruction Fund in Australia.”
The collapse will add to an already difficult period for the tech sector as it continues to be buffeted by job losses. Atlassian last week announced plans to cut 500 jobs from its workforce less than six months after embarking on a recruitment drive.
Minister for Industry and Science Ed Husic has been contacted for comment.
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