March 2023
The demise of Silicon Valley Bank - a lesson in concentration risk
16/03/23 13:55
The demise of Silicon Valley Bank - a lesson in concentration risk
There will be a lot written in the coming weeks and months about the demise of Silicon Valley Bank (SVB). There is no doubt be forensic analysis of what went wrong and why, but it is clear that its impact on the startup ecosystem in the USA and abroad will be significant for years to come, despite the US Government bailing it out (so at 17th in size it was too big to fail) and the UK arm being purchased by HSBC for £1.
SVB was at the core of the startup ecosystem, being prepared to invest in risky early stage businesses where many more traditional banks were not. It also supported venture capitalists and their venture funds, and like moths around a lamp, it attracted all the other players in the startup ecosystem, including Limited Partners and Founders. It also provided retail banking services for startup companies themselves and often for their employees too. In some cases this was to be expected because venture investment contracts often contain clauses about banking and related covenants.
This approach is fine when everything is going well, but the minute things change for the worse, the concentration risk becomes apparent and as we have seen becomes an existential threat to some. We will not know for sure, if ever, how many organisations looked at this concentration risk and took steps to reduce it by spreading their banking services across a number of financial institutions. My guess is a few, if any.
As a consequence, the risks highlighted by the collapse of SVB will probably result in changed behaviours in the short term, but I can see such a situation arising again in the future once the upheaval is in the past and becomes a memory. Next time the institution may not be saved by a Government and be allowed to fail!
There will be a lot written in the coming weeks and months about the demise of Silicon Valley Bank (SVB). There is no doubt be forensic analysis of what went wrong and why, but it is clear that its impact on the startup ecosystem in the USA and abroad will be significant for years to come, despite the US Government bailing it out (so at 17th in size it was too big to fail) and the UK arm being purchased by HSBC for £1.
SVB was at the core of the startup ecosystem, being prepared to invest in risky early stage businesses where many more traditional banks were not. It also supported venture capitalists and their venture funds, and like moths around a lamp, it attracted all the other players in the startup ecosystem, including Limited Partners and Founders. It also provided retail banking services for startup companies themselves and often for their employees too. In some cases this was to be expected because venture investment contracts often contain clauses about banking and related covenants.
This approach is fine when everything is going well, but the minute things change for the worse, the concentration risk becomes apparent and as we have seen becomes an existential threat to some. We will not know for sure, if ever, how many organisations looked at this concentration risk and took steps to reduce it by spreading their banking services across a number of financial institutions. My guess is a few, if any.
As a consequence, the risks highlighted by the collapse of SVB will probably result in changed behaviours in the short term, but I can see such a situation arising again in the future once the upheaval is in the past and becomes a memory. Next time the institution may not be saved by a Government and be allowed to fail!
Seed Enterprise Investment Scheme - Budget 15th April 2023
16/03/23 13:49
Seed Enterprise Investment Scheme - Budget 15th April 2023
One item of goof news for startups!
There are increasing limits and availability of the Seed Enterprise Investment Scheme (SEIS) for startups.
The changes take effect from 6 April 2023.
One item of goof news for startups!
There are increasing limits and availability of the Seed Enterprise Investment Scheme (SEIS) for startups.
- The level of investment that startup companies will be able to raise under the SEIS will increase from £150,000 to £250,000.
- The gross asset limit will be increased from £200,000 to £350,000.
- The investment must be made within 3 years (increased from 2 years) of trade commencing.
- In a move to encourage further support for these changes, the annual investor limit will be doubled to £200,000.
The changes take effect from 6 April 2023.