Written by our Co-founder Tessa de Flines
There is a major domino effect happening that resulted in the collapse of Silicon Valley Bank (SVB) and it’s impact on the startup ecosystem is far from over:
📈 Interest rates were increased to fight inflation
⚠️ Investors became more risk-averse because money was more expensive
📉 Valuations of public tech companies dropped significantly (combined market cap of the 50 largest tech IPOs since 2020 is down 59% vs. the day they IPO’d)
🚨 The market for IPOs shut down for many startups and made private fundraising more costly
🤝 Fundraising deals slowed down (currently trending even lower than projected)
💰 Startups turned to venture debt, of which SBV was a large supplier, to avoid pressured valuations and downrounds
🏛️ This propped up private valuations (By Q4’22, private tech valuations across most stages had fallen modestly from 2021’s heights, but were still up compared to 2020)
💸 But cashflow gaps remained and SVB clients started pulling money out to meet their liquidity needs
🛑 SVB unsuccessfully looked for ways to close it’s funding gap which resulted in the collapse
➡️➡️➡️ WE ARE HERE NOW ⬅️⬅️⬅️
🕵️ Investors are becoming increasingly discerning just when startups need more access to equity funding now that debt is less of an option
👎 Propped-up valuations will be “pressured” and start falling faster, as they have in the public markets. This will mean more down rounds.
☹️ Layoffs at startups will intensify in an effort to reduce their cash burn
⛔ More startups will have to close up shop
What do you think? Is this a major disaster or a needed correction?
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