Over the weekend, if you were even tangentially connected to tech or startup culture you’ve probably seen alarm-bells being rung and gloomy LinkedIn posts about the failure of Silicon Valley Bank, aka SVB.
So, why did it fail, and what might that mean for the mobile game industry? Well to answer the first question, Silicon Valley Bank is (or rather was) an institute which has most famously worked in providing venture capital to startups and which has fuelled many new and ambitious companies in the tech industry. It began its life serving its local Silicon Valley area and the tech companies therein, and in the following years would become known for servicing nascent startups all across the country.
As noted by the BBC, this early-stage lending policy led to SVB being the banking partner for at least half of the healthcare and tech companies being listed on the stock market. In this way it was a cornerstone for the startup culture that has exploded in America and beyond, where it seems practically every company has ambitions of huge success following risky investment.
Early on in its lifetime this attitude set the bank apart from the rest of the financial system, where stability, demonstrable growth and potential profit were key. As noted on San Francisco news site SFGate way back in 1995, “While most commercial banks prefer proven clients, SVB likes to cement relationships with companies when they are economic toddlers.”
"SVB was an important part of the tech ecosystem"
Kristan Rivers CEO and Founder of AdInMo - a company that has worked with SVB for funding previously - commented. "Let’s be honest: banks are usually in the same bucket as telcos and cable companies: customers never really love them; you just try to pick the least-shit one. That’s why SVB was an important part of the tech ecosystem. AdInMo directly benefited from their network, their products were tailored to start-ups and there was a clear value-add beyond transactional banking.
"I’m pleased that, at least here in the UK, the situation has been resolved quickly and hopefully from an SVB customer perspective, the transition will be painless.
"More broadly, hopefully there will be some further learnings to come out of the dramas. The US VC community have had their part to play in the demise of SVB and given the importance of crypto & NFTs to gaming, then this affects everyone in mobile gaming not just SVB customers.
"The ideal scenario would be the trust and comfort blanket ‘a big bank’ like HSBC offers, but the innovative spirit and vision of SVB is allowed to thrive. Time will tell."
So what happened?
On Wednesday, SVB announced it would be selling stocks in order to raise money. In their investor presentation they noted this was due to an increase in interest rates, general economic pressure and the fact that the startups that it had invested in were continuing to use up investment funds with no return. “We are taking these actions because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses.”
It was an announcement which sparked a sudden drop in SVB share prices by over 60%. It’s worth noting that in the wake of the dot-com crash a similar drop of around 50% took place. But the difference here is the sheer speed of the fall, and the fear that the bank was in a bad place quickly took a hold and turned a possibility into an inevitability.
In this case the interconnected nature of many startups didn’t help, as expressed by some such as Alexander Torrenegra on Twitter who related how the wave of withdrawals happened in real time.
How might it affect mobile?
Unless a company is directly involved with SVB, be it with assets deposited with the bank, or relying on a line of credit from the bank, it's unlikely that they will see an immediate effect. Companies which deposit with the company however are already alarmed at the prospect of being unable to pay employees or other costs while being unable to access their accounts. The effect is not just hitting the typical Silicon Valley startup either, as SVB boasted of holders from multiple industries, including unexpected sectors such as wineries.
While many mobile game companies are not as inextricably tied to SVB as many tech startups are, at least one major developer - that being Huuuuge Games - have indicated that at least some of their cash and securities are held at SVB. So while the collapse may not pose an immediate fatal risk, it's likely that the broader picture of mobile gaming won’t go unaffected.
Other areas such as esports are assessing the damage, so it may not be clear for at least a few months as to what the effects are on companies not tied to SVB. VC firms which have invested heavily in mobile and other sectors may end up negatively affected, which would then have a knock-on impact.
However, the wider implications for venture capital and startups in tech and associated industries are likely to be felt both immediately and in the near future. Plenty of other outlets are already speculating about the potential knock-on effects. Although others are dismissing the idea that the failure of a bank like SVB will have an effect on the global financial markets in the same way that similar collapses in the late 2000s did.
The assumption, one might expect is that SVB’s collapse would lead many VC firms and investors to be far more sceptical in the future. But in contrast, some are already discussing a return to SVB if it is revived in some capacity, emphasising just how much of a cornerstone of American tech startup culture it was seen as. In the UK, SVB’s UK arm has been purchased by HSBC and regained some measure of assurance, and, as noted by US authorities, much of the money in SVB is insured and should be available to depositors as of the time of writing (Monday the 13th).
Opinions as to who's to blame and what to do next are already in full flow. Whether that’s critiques of the general attitude of startup culture, the risks taken by SVB or the effect that the rolling back of certain financial regulations such as Dodd-Frank had on exacerbating the situation.