The Collapse of SVB Will Not Directly Affect Croatian Startups, Except in One Segment

It has been a dramatic weekend for clients of the fallen Silicon Valley Bank, who until today were uncertain about what would happen to their deposits. The silver lining is that U.S. authorities got involved in the situation on Monday. The U.S. Department of the Treasury, the Federal Reserve Board, and the Federal Deposit Insurance Corporation (FDIC) decided to fully protect all clients who had funds in Silicon Valley Bank, which were predominantly startups.

Everyone has been granted access to their money, but the collapse of SVB still worries startup founders and investors who fear further repercussions and a financial disaster, reports Business Insider.

Inadequate Management

– Silicon Valley Bank was one of the main banks for American startups that kept liquidity in deposits, and SVB, like any other bank, allocated a large portion of deposits into loans and bonds – says Goran Dubček, fund manager at InterCapital Asset Management.

– This situation arose primarily due to inadequate management of the bank’s assets and liabilities. Besides the fact that the bank’s liabilities were highly concentrated among a small number of clients, the bank had an exceptionally high percentage of long-term bonds in its portfolio, the prices of which dramatically fell due to rising interest rates. After the bank announced last week that it was raising additional capital to cover losses on long-term bonds, panic ensued among clients, leading them to withdraw deposits, and the bank found itself in trouble not only with losses but also with liquidity – explains Dubček.

Bank balances have been under pressure for the past year due to rising interest rates, Dubček adds. The U.S. central bank, the Fed, has raised interest rates several times from zero to the current 4.5 to 4.75 percent in an attempt to curb inflation.

– However, it is crucial to say that the banking system, especially in Europe, is significantly better capitalized than before the global financial crisis. Given the situation, it is possible that the European and American central banks, which are meeting this and next week, will slow down the rate hikes and soften the rhetoric around monetary policy for the rest of the year – adds Dubček.

Money is No Longer Cheap

The situation with Silicon Valley Bank has quite surprised startup founders in Croatia, but, as Hajdi Ćenan, president of the CRO Startup association, says, we do not have many touchpoints with it in these areas.

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Hajdi Ćenan

photo Ratko Mavar

—– As far as I can see, it has surprised many in America as well; the first signs in public began to appear only a month ago, and the real panic only arose a few days ago after Peter Thiel informed his founders to urgently transfer their deposits to other banks – says Ćenan.

She adds that everyone is closely watching whether and how much the entire situation will ‘spill over’ to other banks.

– I know of several of our startups that tried to open a bank account with them, but it was quite a complicated process and, I must admit, I am not sure if they managed to realize it. I hope they did not, that (finally) it happened that complicated administration and bureaucracy resulted in an unexpectedly positive outcome – emphasizes Ćenan.

The SVB case will further worsen the situation in the American technology and startup sector, which has been struggling for a year with falling stock values, rising interest rates, harder access to investments, waves of layoffs, and now the collapse of one of the most important banks for that sector.

– In any case, this is a blow (primarily) to the technology and startup sector, starting with Silicon Valley, and many companies that had funds in their accounts will very likely fail if they are not profitable. All those who based their business on refinancing have been in trouble for some time because money is no longer ‘cheap’, which has led to valuations deflating and investments significantly decreasing. This will only further worsen the situation – adds Ćenan.

However, there is one thing that Croatian startups must be aware of due to the collapse of SVB.

– Rising interest rates affect the availability and cost of capital, which Croatian startups will feel when seeking new rounds of financing. Although the collapse of SVB will not directly affect them, it is expected that after this, investors will raise their expected returns on their investments – emphasizes Dubček.

‘Know Your Bank’

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Jura Mikuž

—That the collapse of SVB was difficult to predict is confirmed by Jure Mikuž, manager of the South Central Ventures fund, who emphasizes that the entire situation will affect those who have cash accounts abroad, as SVB was very flexible for the specific needs of startup companies.

– It is likely that in the near future, startup companies will be more cautious when choosing banks to work with. This concept has already become established in the market; along with KYC (know your client), we are now also talking about KYB (know your bank) – concludes Mikuž.

On Monday, the intervention of authorities in the SVB case brought relief to startup founders, but many of them have already started opening accounts in large banks. Co-founder and CEO of Rad AI, Dr. Gurson, plans to transfer money to a new account in a larger bank, although he still does not know when the deposit will be made in Silicon Valley Bank.

– Companies should never fear whether their deposits are safe. I do not know if there is a safe place we could go – concluded Gurson.