Regulators in California last Friday shuttered Silicon Valley Bank. This was a stunning closure for an institution that has been around since 1983, and that has diligently served startups – including emerging e-commerce ventures. It was the 16th largest bank in the U.S. Not only did build a name as a reliable financial institution for startup banking and venture banking. Silicon Valley Bank also led to a rise in competition as traditional lenders such as First Republic and JP Morgan also started targeting startups.
The fall of Silicon Valley Bank
The bank last week revealed that it had recorded a $1.8 billion loss (post taxes). This was even after the organization had sold off about $21 billion in securities and had plans to raise a further $2.5 billion to strengthen its financial position. In light of the bank’s unstable position, news broke out on Thursday that several leading venture capital firms had advised their clients to pull their money out of Silicon Valley Bank. This led to a ripple effect that ultimately culminated in the bank’s downfall.
How does this affect ecommerce startups
eCommerce startups have not historically raised vast amounts of venture capital and many of them are thus less reliant on Silicon Valley Bank. However, there have been concerns about seismic ripple effects because companies that do business with eCommerce firms could be affected by the bank’s collapse. For instance, if a technology partner or vendor is affected, then this could lead to an adverse disruption that in fact affects the day-to-day running of firms in the eCommerce sector. Many companies were by Friday afternoon assessing how the bank’s collapse would impact them. Some are resulting in issuing notices to their customers reassuring them that their operations will not be affected while others are scrambling for ways to pre-empty any negative implications.