Travel startups consider cost of SVB collapse

Regulators in the United States and United Kingdom scrambled over the weekend to mitigate the impact of the collapse of Silicon Valley Bank.

News of SVB’s demise left the startup world reeling, with the bank said to work with more than 50% of U.S. startups and 40% of U.K. startups. Many feared they would be unable to make March’s payroll.

In a LinkedIn post Brian Nolan, CEO of BookOutdoors, says: “'Dealing with bank collapse' was not on my list of Startup Challenges I planned to work on this week.”

On Sunday U.S. federal regulators said they would ensure SVB depositors were paid back , saying: “depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

Early Monday morning, the U.K. government announced HSBC was buying SVB U.K. for £1 and that “Customers of SVB UK will be able to access their deposits and banking services as normal from today.”

It added that no taxpayer money was involved.

Travel startups including Navan and Sonder, which have all received investment from SVB in recent years, had issued statements on their position regarding the bank’s collapse over the weekend.

Via a Tweet on Saturday, Navan says: “Despite the recent closure of SVB, Navan’s financial position remains strong. Less than 5% of our liquid assets were held by SVB. We have a robust network of financial partners, including Goldman Sachs, Citibank and Bank of America, and do not rely solely on SVB to provide our services.”

It went on to advise customers to disconnect their SVB business credit card from their Navan account and connect an alternative payment method.

On Friday, Sonder released a statement saying it was actively monitoring the situation:

“The Company had $289 million of cash and restricted cash as of December 31, 2022, over half of which is held in a AAA-rated BlackRock money market fund. As of March 9, 2022, the Company had approximately $2 million in an operating cash account and approximately $20 million in deposit accounts with Silicon Valley Bank (SVB).

"Sonder also holds a $60 million line of credit facility with SVB issued in the ordinary course of business for the benefit of property owners and other counterparties, of which $13 million is currently utilized in the form of letters of credit.”

Meanwhile, Johannes Siebers, co-founder and CEO of Holidu, which SVB was listed as providing venture debt to last year, says: ”Fortunately, we have not had any deposits with SVB and have therefore not been affected. We have been well capitalised in the last financing round six months ago. A working capital line from SVB was a small part of it, but we actually haven’t even used it due to strong overall capitalisation."

A spokesperson for GetYourGuide, which received an €80 million credit facility from investors including SVB in early 2021, says it works with "several banks - including, until recently, SVB - which provides lines of credit. Through our monitoring, we saw the news surrounding SVB very early on Thursday, March 9, and transferred funds elsewhere. Therefore, GetYourGuide had no funds deposited with SVB at the time when it was shut down and as such is not impacted."

Other companies in the startup ecosystem announced initiatives to help those that might need loans in the short- to medium-term before the regulators had made their decisions.

Y Combinator set up a petition signed by more than 5,000 CEOs and founders to leading U.S. regulators expressing concern about the failure of the bank and asking for “relief and attention to an immediate critical impact on small businesses, startups, and their employees who are depositors at the bank. According to the NVCA, Silicon Valley Bank has over 37,000 small businesses with more than $250,000 in deposits.”

Payroll provider Deel announced $120 million in support for startups in partnership with Andreessen Horowitz and Y Combinator while the CEO of payments specialist Brex said he was trying to raise $1 billion for emergency loans for affected startup companies.

But with a collective sigh of relief once regulators stepped in and measures were announced, startups and venture capitalists quickly turned their attention to the wider issue of funding.

Available capital has dried up in the past year with startups already finding it hard to seal deals.

While many have said the focus on profitability is a good thing, this latest crisis is likely to exacerbate the situation.

Inside Intelligence principal banking analyst Tiffani Montez says: “Many tech startups are out of runway. SVB’s collapse will make additional funding even scarcer: VCs will become hyper-aware of startups’ cash burn, and banks will raise lending costs. Without cash infusion through loan or investment, we expect more failures and acquisitions of startups that are already on life support.”

Jack Dow, founder and CEO of Grapevine, a PhocusWire Hot 25 2023 startup , says: "With deposits now protected, the key thing for startups now is that investor confidence in the broader market is restored asap. The best we can hope for is that investors continue to engage with startups vs. pausing to see what happens next. With a small window before summer, a delay could result in significant fundraising momentum being lost in the industry."

In a LinkedIn post , Axel Tombereau, CEO of investment company Odyssey, revealed that “As of December 31, 2022, 55% of its [SVB’s] loan portfolio were loans to venture capital firms (a16z, Sequoia Capital, Coatue…). 24% of its loans were to technology and health care companies, including 3% of all loans which were to early-stage and 6% to growth-stage startup companies.”

U.S. President Joe Biden is expected to make an announcement on SVB's collapse on Monday.