Britain’s Startups And Investors Ponder HSBC’s Acquisition Of Silicon Valley Bank’s U.K. Arm

It all happened very quickly. After a weekend of frenetic activity involving the government and the financial sector, a buyer was found for the U.K. arm of Silicon Valley Bank. Naturally enough, there were sighs of relief all round. Businesses that feared being denied access to their deposits could breathe again. A major player in Britain’s banking industry had galloped to the rescue in double-quick time

But for the startup community there’s still a lot to unpack.

The fact that Silicon Valley Bank U.K. has more than 3,000 customers on its books illustrates its importance to Britain’s technology and life-sciences ecosystem. These are companies that could – presumably – choose to do their banking with big names in the sector. Instead, they have opted for SVB, considering it to be a bank that would understand the special requirements of startups and scale-ups.

Highly Recommended

Data management, visualization and discovery company, Solidatus is a case in point. “We raised Series A funding in 2020 to amplify and accelerate our expansion globally, ” says CEO and founder, Philip Dutton. “We needed a bank that understood and provided services catered to hyper-growth technology organizations as we were scaling our operations in APAC and North America. SVB was highly recommended, so we chose them as our primary banking provider in both the U.K. and the U.S..”

It’s a point echoed by Richard Anton, General Partner of European software business investor, Oxx VC. “When SVB was set up, other commercial banks were not focused on this ecosystem. SVB provided multiple value-added services to tech startups such as insights, focused events, and specialized banking products. These remain valuable and so we strongly support SVB returning to normal operations.,” he says.

The bank’s popularity with startups means that in a counterfactual universe in which it had not been bought for £1 by HSBC, there would have been real concerns about the negative effect on Britain’s innovation economy.

“The implications were short-term and severe,” adds Anton. “We would have seen many companies struggling or in many cases failing as their cash evaporated. This would have happened immediately, with the need to make payroll and pay other essential expenses. Within 1-2 weeks, companies would have needed to find emergency funding to survive. At the best of times, this would have been difficult at scale, and in the current financial climate many companies would have gone under.”

Stephen Chandler, co-founder and Managing Partner at VC, Notion Capital agrees. “The main issue was the huge insolvency risk for those companies with cash deposits frozen or lost at the bank. An inability to pay suppliers and staff in the short term, plus challenges with raising capital to fill.”

This, he adds, would have had the knock-on effect of reducing the attractiveness of the asset class. “ Long term, this would have put the innovation ecosystem back many, many years, with the associated impact on the UK and global economies – jobs, skills, growth, tax revenues etc,” he says.

All’s Well That Ends Well?

At this point, it’s tempting to conclude with the words “all’s well that ends well.” But there are questions to be asked. From the outside looking in, it appears the UK governent and the banking authorities worked very effectively to smooth the way for an acqusition. More importantly, a major institution was prepared to take on a startup-oriented bank.

But something has perhaps changed. Hristo Borisov is CEO and co-founder of spend management company, Payhawk. He says startups will seek to mitigate their banking risks. “Start-ups will ‘evolve’ how they interact with money. Most tech companies are now likely to add other bank accounts, credit cards and so on to their financial stack. And also diversify their supplier, vendors and critical business infrastructure, to reduce over-reliance on any one particular provider.”

Richard Anton says there are lessons to be learned. “The events of the past days show we all have a lot to learn, and at company, firm and regulator level, everyone will need to digest where we almost ended up,” he says.

So what might policymakers consider? Anton points to some questions. “Should measures be put in place to diversify banking service providers? Do banks need to implement further risk protocols?”

There are perhaps questions about whether governent could do more to guarantee the deposits of startup companies in the event of a bank filing for insolvency.

Mike Rhodes, Founder and CEO of ConsultMyApp – who responded when I asked for opinions via email – said startups may look closer to home for banking. “British startups and scaleups are now starting to see that banking and investment avenues don’t just come through Silicon Valley – there are new, more local opportunities available on our doorstep, and of course, HSBC – with its global HQ in London -has now been given an important in-road to the lucrative tech industry.”

That of course highlights the role of HSBC. It seems very pleased with a purchase that that enables it to provide banking services to some of the UK’s most innovative companies. It’s a powerful position.

The industry will be waiting to see how the bank operates its new acquisition.

.

.