SVB’s failure will have a ripple effect across technology ‘for years to come’

Silicon Valley Bank was the backbone of many startups and venture capital funds around the world. The effects of its collapse, the biggest banking failure since the 2008 financial crisis, is likely to be felt across the technology landscape globally over the coming years.

“With SVB in essence the Godfather of the Silicon Valley banking ecosystem for the past few decades in the tech world, we believe the negative ripple impact of this historical collapse will have a myriad of implications for the tech world going forward,” Dan Ives, analyst at Wedbush Securities, said in a note on Tuesday.

SVB’s collapse began last week when it said it needed to raise $2.25 billion to shore up its balance sheet. Venture capital firms told their portfolio companies to withdraw money from the bank and other clients looked to get their cash before it became unobtainable. This effectively led to a bank run.

The bank had to sell assets, mainly bonds, at a massive loss.

U.S. regulators shut down SVB on Friday and took control of its deposits. Regulators then said Sunday that depositors at SVB would have access to their money, in a move aimed at stopping further contagion.

But the episode has the potential to impact the technology world in several ways, from making it harder for startups to raise funds to forcing firms to change their business model, according to investors and analysts who spoke to CNBC.

SVB was critical to the growth of the technology industry, not just in the U.S. but in places like Europe and even China.

The 40-year old institution had an intimate link to the technology world offering traditional banking services as well as funding companies that were deemed too risky for traditional lenders. SVB also provided other services like credit lines and lines to startups.

When times were good, SVB thrived. But over the past year, the U.S. Federal Reserve has hiked interest rates, hurting the once high-flying technology sector. The funding environment has got harder for startups in the U.S., Europe and elsewhere.

SVB’s collapse has come at an already difficult time for startup investors.

“This whole Silicon Valley Bank thing is the last thing we needed and was completely unexpected,” Ben Harburg, managing partner of Beijing, China-based venture capital fund MSA Capital, told CNBC.

Startups have had to tighten their belt while technology giants have axed tens of thousands of workers in a bid to cut costs.

In such an environment, SVB played a key role in providing credit lines or other instruments that allowed startups to pay their employees or ride out hard times.

“Silicon Valley Bank was very paternalistic to this sector, they not only provided payroll services, loans to founders against their illiquid credit, but lines of credit as well. And a lot of these companies were having trouble already raising equity and they were counting on those lines to extend their runway, to push out the cash burn beyond the recession we all expect.” Matt Higgins, CEO of RSE Ventures, told CNBC’s “Street Signs Asia” on Tuesday.

“That evaporated overnight and there’s not another lender that’s going to be stepping in to fill those shoes.”

Paul Brody, global blockchain leader at EY, told CNBC Monday that a crypto firm called POAP, which is run by his friend, has half of the company’s money tied up in SVB and can’t get it out. The amount at SVB is “more than payroll can cover,” suggesting it might be hard to pay employees. A spokesperson for the company wasn’t immediately available for comment, and CNBC was unable to independently verify Brody’s comments.

The SVB collapse will also likely put the focus on startups to pivot to profitability and be more disciplined with their spending.

“Companies will have to reboot the way they think about their business,” Adam Singolda, CEO of Taboola, told CNBC’s “Last Call” on Monday.

Hussein Kanji, co-founder of London-based Hoxton Ventures, said that over the next three years there will be more restructurings at companies, though some are holding off.

“I’m seeing a lot of ‘kick the can down the road’ behavior which isn’t that helpful. Do the hard things and don’t delay or procrastinate unless there is very good reason to. Things don’t often get easier in the future simply because you wish for them to,” Kanji told CNBC via email.

Wedbush’s Ives said that there could also be more collapses, adding that early stage tech startups with weaker hands could be forced to sell or shut down.

“The impact from this past week will have major ripple impacts across the tech landscape and Silicon Valley for years to come in our opinion,” Ives said in a note Sunday.

—CNBC’s Rohan Goswami and Ari Levy contributed to this report.