The UK government is currently engaged in crisis discussions to explore potential measures aimed at rescuing technology startups that are facing financial constraints following the collapse of Silicon Valley Bank.
The Treasury has expressed its commitment to finding ways to “minimise the impact” on the startup ecosystem in the UK after the Bank of England took steps to place the UK division of Silicon Valley Bank into insolvency on Friday evening.
The failure of Silicon Valley Bank, also known as SVB, represents the largest bank failure since the financial crisis of 2008.
The repercussions of the collapse have reverberated across the Atlantic, leading to emergency talks between the prime minister, chancellor, and the governor of the Bank of England over the weekend.
The Treasury has designated this issue as a “high priority,” acknowledging that the failure of Silicon Valley Bank UK could significantly affect the liquidity of the technology ecosystem.
It has been reported that the government is engaging in discussions with potential buyers who could acquire SVB UK. The UK subsidiary became a legally separate entity from its US parent company in September 2022.
Over 200 entrepreneurs from UK startups have written a letter to Chancellor Jeremy Hunt, cautioning that the insolvency of SVB UK poses a serious threat to the existence of the UK tech sector.
The rapid collapse of SVB has left numerous tech startups in the UK without access to funds. Although most deposits are insured up to £85,000 (or £170,000 for joint accounts) under the protection of the Prudential Regulation Authority, tech founders are scrambling to secure funds to meet payroll and pay suppliers.
The signatories of the open letter informed the chancellor that many of them were examining their financial situation to determine if they are potentially facing technical insolvency.
At the time when the Bank of England declared it insolvent on Friday, SVB UK held nearly £7 billion in deposits.
Rapidly diminishing time
In an update on Saturday, Dom Hallas, the executive director of the Coalition for a Digital Economy (Coadec), expressed concern about the pressing time constraints faced by companies. He emphasised the immediate need for liquidity and functional access to banking services on Monday.
Government officials engaged in discussions with stakeholders from the technology sector on Saturday to address industry concerns and explore potential solutions.
The government is urging affected startups to contact the Treasury, providing information such as the size of their SVB UK deposit, approximate monthly cash burn rate, and whether they have access to other UK banking facilities.
SVB UK has ceased making payments and accepting deposits, leading some UK startups to be unable to withdraw cash on Friday before measures were taken to place the bank into insolvency.
“This unexpected external shock caught everyone off guard,” stated Russ Shaw, CBE, the founder of Tech London Advocates & Global Tech Advocates. Shaw added that he believes a rescue package is likely, but it remains unclear how it would be structured.
The collapse of SVB has raised concerns about the potential spread of contagion to other lenders, resulting in a decline in global banking shares on Friday. In an attempt to alleviate fears, the Bank of England stated that SVB UK has a limited presence in the UK and does not fulfil critical functions supporting the financial system.
However, an open letter signed by UK startup CEOs and founders criticised this statement, arguing that it demonstrates a dangerous lack of understanding of the sector and its role in the broader economy.
Technology Secretary Michelle Donelan acknowledged that the tech sector often faces cash flow challenges as it grows, and she expressed determination to support the sector and minimise the impact.
Crisis and Protecting UK Companies
In a joint statement, the prime minister, chancellor, and the Treasury assured that the government is swiftly working on a solution to prevent or minimise damage to promising UK companies. They pledged to present immediate plans to address the short-term operational and cash flow needs of Silicon Valley Bank UK customers.
Following a liquidity crisis that triggered panic withdrawals, SVB was taken over by US regulators on Friday. SVB UK announced its intention, subject to intervening events, to enter insolvency starting from Sunday evening, while also expressing a commitment to act in the best interest of its clients.
The UK government urgently discusses measures to help startups after Silicon Valley Bank’s collapse, aiming to address liquidity issues. The Bank of England placed SVB UK into insolvency, creating a crisis in the tech sector. Talks focus on immediate solutions for affected startups and minimizing damage to promising UK companies.