Silicon Valley to feel SVB impact for years to come, claims Wedbush
By Sam Boughedda
As markets continue to react to the significant effect of the SVB Financial Group (NASDAQ:SIVB) situation on Monday morning, Wedbush analysts believe the ripple impacts will be felt in Silicon Valley for years to come.
Last week, SVB announced it had sold some securities at a loss and said it would sell $2.25 billion in new shares to shore up its balance sheet. This triggered a panic, and California regulators closed down the tech lender, putting it under the control of the US Federal Deposit Insurance Corporation.
The analysts said in a note Sunday evening that Wedbush has heard from numerous public tech companies, VCs, private tech start-ups, and investors and that given it has been an “integral part” of the VC and tech start-up community for decades, its “historical black eye moment” means there are short-term and long-term consequences for the tech sector from the second-biggest bank failure in US history.
“In the near-term, there is minimal exposure from a public company perspective around this SVB implosion, and outside of Roku (NASDAQ:ROKU) and a handful others in the tech world with money at the bank, we see negligible impact on the cash balances of public tech players,” Wedbush analysts wrote. “However, while we have heard from public CFOs since Friday night across the board, which should calm down initial tech investor fears, the bigger and more troubling story is how this will change the start-up and VC community going forward.”
“While the emergency Fed announcement tonight clearly backstops the SVB funds and takes uncertainty off the table, 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,” they added.
The analysts believe that for tech start-ups with higher cash burns and a more uncertain environment, the hurdle for bank loans and other forms of debt financing will be a “different world going forward.”
“Scrutiny will be higher across the banking system, which will naturally put more pressure, especially on the financing needs of the tech start-up community for years to come,” they continued.
“In turn, this could accelerate M&A within the start-up ecosystem and also ultimately drive more late-stage start-ups to seek alternative financing and in some cases could speed up the IPO path with a much tighter financing environment post SVB.”