Silicon Valley Bank Crisis is Disrupting Fintech Funding
As per the IPO news, concerns about the banking sector’s liquidity and its potential impact on smaller firms that rely on bank loans and capital have been triggered by the recent reports of Silvergate Capital’s closure of its banking operations for the crypto industry. After Silicon Valley Bank’s parent company, SVB Financial Group, reported a $1.8 billion loss from the sale of $21 billion in U.S. Treasury securities and holdings, the problem became more apparent. Investors are worried the inflation, a rise in interest rates, and diminishing deposits on the company’s operations, which has led to a 60% drop in the price of stocks and an extra 18% drop in after-hours trading.
Due to difficulties in raising capital and attracting investment, the situation is of particular concern to Silicon Valley Bank’s tech startup and fintech clientele. Traditional banks are feeling the pinch from two directions: falling deposit balances mean less cash to give and rising operational expenses. Margin pressure is discouraging potential shareholders from purchasing shares.
With 71% of fintech IPOs since 2020 and banking for 50% of venture-backed tech companies, SVB has emerged as the industry leader in banking. However, it may find that its dependence on these customers is a dual-edged sword as it comes under greater strain from its shrinking deposits and constrained ability to invest.
It is also more challenging for Fintech, which went public during the global epidemic, to raise capital investment or enter the market for new listings, as their stock prices are currently trading at about 50 percent of their listed value. Peter Thiel’s Founders Fund, a venture capital firm, has warned its clients to move their money out of SVB because of the current crisis.