More than 200 UK-based tech company executives have called for Downing Street to intervene following the collapse of Silicon Valley Bank, which they warned was an “existential threat to the UK tech sector”.
The British bank moved SVB’s UK arm into insolvency late on Friday after the bank’s US entity died earlier in the day, but said it had “limited availability in the UK and lacked critical functions that support the financial system”.
On Saturday some 210 founders and startup leaders signed an open letter to Jeremy Hunt, the British chancellor, warning that “the majority of us tech founders are walking to see if we have the potential to technically go bankrupt”.
The signatories say they employ more than 10,000 people and have raised venture capital totaling £3.5bn.
“The majority of tech businesses are the most diverse and dynamic banks with SVB and no or limited diversity where the deposits are held,” the letter said.
“This is a moment of real crisis for British startups,” said Dom Hallas, chief executive of Coadec, a lobby group representing British technology companies. “Without a clear path forward by Monday, the risk will grow – it’s important that the government has a plan in place now.”
Signatories to the letter include executives from Tessian, Beamery, Curve and bit.bio, companies that have each raised more than $100 million in funding, as well as several smaller companies.
The letter added: “The Bank of England’s assessment that SVB’s insolvency would have a limited impact on the UK economy shows a lack of understanding of the sector and the role it plays in the wider economy, now and in the future.”
Daniel Shakhani, founder of Salary Finance and investor in a series of companies that have received SVB funding, said: “This is a crisis that requires the involvement of the UK government because it is unclear what the outcome will be for the UK entity, which could be left orphaned if SVB US is sold.
As of late, SVB UK has said it is an “independent subsidiary” of the US-based SVB Financial Group with its own balance sheet and “ring fenced” funds. But it was forced to call on £1.8bn of liquidity that day as panic spread among tech companies and investors.
Companies that are unable to access funds trapped in SVB’s UK arm can themselves move in, the executive said, warning of a “meaningful” increase in unemployment as the impact cascades through the UK economy.
The official enlisted the tech company to better understand the scale of the problem and potential solutions, according to people familiar with the discussions.
The Treasury said: “We are working with the Bank of England to ensure that the failure of Silicon Valley Bank UK is managed smoothly, and that any disruption is mitigated.”
Hunt has discussed the situation with Bank of England governor Andrew Bailey, and economic secretary to the Treasury Andrew Griffith is in touch with the affected companies and will host a meeting with them later today, the Treasury said.
The Bank of England declined to comment on the possibility of additional support for clients with large deposits in SVB.
Shadow chancellor Rachel Reeves tweeted that the situation was “very worrying for many companies”. “The Chancellor must urgently assess the extent of the risk to UK companies posed by the collapse of SVB, and must work with companies to manage those risks,” he said.
The insolvency procedure is the BoE’s preferred resolution strategy for small banks that “do not provide transactional accounts or other critical functions to a scale that can justify” the use of resolution measures, which ensures that the bank can continue to carry out its core business while the wind-down plan is worked out.
Unlike ordinary corporate insolvency, the priority bank insolvency process pays depositors £85,000 protected by the FSCS “as soon as practicable” with a target of seven days. The money could be raised through industry levies “as needed” and later recovered from insolvency as assets are sold.
The second objective of the bank liquidator is to achieve the best possible outcome for the bank’s creditors as a whole.