AN IRISH TECH entrepreneur has warned that “a huge amount of startups are going to get stung” by the collapse of Silicon Valley Bank (SVB).
Pat Phelan, co-founder and CEO of Sisu Clinic, said he realised early last week that the falling stock of SVB was something he needed to keep his eye on.
On Friday, US regulators pulled the plug on SVB – a key lender to US startups since the 1980s – after a run on deposits made it no longer tenable for the medium-sized bank to stay afloat on its own.
US Treasury Secretary Janet Yellen today said the government wanted to avoid financial “contagion” from the implosion of the Silicon Valley Bank but ruled out a bailout of the institution.
The Ireland Strategic Investment Fund (ISIF) has said the around $100m it had invested in five funds managed by SVB Capital, a subsidiary of the Silicon Valley Bank (SVB) Financial Group, would not be impacted by the panic that had started on Thursday with a massive drop in share price and a subsequent share sale.
“This means ISIF does not expect any impact on these investments arising from SVB Financial Group’s announcement that it will issue additional shares in the group,” a spokesperson for ISIF told RTÉ.
“The distributions received by ISIF from these investments since 2012 exceed the amount currently invested.”
Pat Phelan told RTÉ’s This Week: “I started looking at their [SVB] stock price, and it started dropping quickly and by Wednesday was in freefall, Thursday it was down 60%.”
Phelan said he had a lot of money on deposit in SVB because “we’re a venture-backed startup and the venture capitalists like you to use SVB”.
“Our experience, Ireland, tells you that it’s slow, and then it’s fast,” said Whelan.
“But I don’t think anyone could have predicted that a top 20 bank in the US, the banker of start-ups, could be gone in 24 hours.”
The Sisu Clinic co-founder told RTÉ he became “obsessive” about the stock price on Thursday afternoon and pulled “millions” from the bank on Thursday night.
“I thought ‘this is too risky’ and we pulled our companies millions out of there on Thursday night via WhatsApp.
“I had wake up the world, we’re going to need multiple signatures on this and empty the account.
“I knew that we were guaranteed to $250k but that was just a fraction of what it was.”
Crisis measures put in place by the Federal Deposit Insurance Corporation (FDIC) protects customers with up to $250,000 in deposits with the bank.
SVB is expected to reopen on Monday under a new name, with billions in customer deposits now under FDIC control.
“We pulled it all out,” said Phelan, “and I started dealing with calls from friends who are in the startup world, ‘what do you think?’
“I said, ‘I’m pulling, I’ve gone’, I couldn’t take this level of risk and we just shifted it back to our Bank of Ireland dollar account.”
However, Phelan told This Week that the “worst part” has been getting calls from people in Irish companies that left money in the now collapsed bank.
“I was talking to one person in particular, who runs a very successful Irish company, and has $8 million that they have no access to today.
“And then you look at Twitter this morning where the big venture capitalists are saying that this needs to be the government now, because their companies don’t have money to make payroll next week.”
He warned that “a huge amount of startups are going to get stung”.
“On Monday, you’ll see startup CEOs beginning to panic,” said Phelan.
“And I think what you’re going to see is probably contagion coming into Bitcoin as well – probably a considerable drop in Bitcoin values.”
Bitcoin is the leading form of cryptocurrency and other cryptocurrencies have been rattled by the collapse of SVP.
The supposedly “stable” cryptocurrency USDC fell sharply after the firm that created it, Circle, announced it holds $3.3 billion in SVB.
The USD Coin, or USDC, was launched in 2018 as a “stablecoin,” meaning it was indexed to a currency backed by a central bank, in this case the US dollar.
It is listed as the second largest “stable” currency worldwide, based on its volume in circulation (around $40 billion), behind Tether.
Stablecoins are supposed to be backed by equivalent reserves in immediately available assets, either cash or readily convertible financial securities.
Overnight Friday to Saturday, the USDC fell to its lowest level ever, dropping to 87 cents before recovering to around 94 cents.
-With additional reporting from AFP
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