How SVB’s Crisis Creates an Opportunity for European Tech Businesses

Key Takeaways:

  • SVB’s recent crisis could create an opportunity for European tech businesses to take a leadership role in the industry.
  • The cultural and financial conservatism of European tech businesses puts them in a better position to resist the crisis than their US counterparts.
  • This crisis could create an opportunity for well-funded and financially healthy European businesses to take over and grow into the US market.

SVB’s Meltdown: An Opportunity for European Tech

Silicon Valley Bank (SVB) has been a part of the tech ecosystem of the Silicon Valley for close to 40 years. The bank has prided itself on understanding the needs of entrepreneurs and catering to them exclusively. However, the bank recently faced a major crisis, with $42 billion being withdrawn in a single day. This has created an opportunity for European tech businesses to take a leadership role in the industry.

SVB’s Business Model

SVB has two kinds of services for businesses, deposit accounts, and venture loans. The majority of larger rounds coming out of the US tech sector over the past five to ten years were half equity and half debt. SVB’s business model was popular with entrepreneurs for its agility. However, this model ultimately proved to be unsustainable, and the bank faced a major crisis.

SVB’s Crisis

$42 billion was withdrawn from SVB in a single day, which was equivalent to 30% of the bank’s customer deposits. This caused a panic, and local talks of SVB’s imminent failure became global within hours. Fortunately, the US government stepped in on time to ensure that anyone banking with SVB could get access to the entirety of their funds in a timely manner. While a massive systemic crisis was avoided in the immediate term, this has had two adverse effects on the US. Firstly, SVB will not be honoring loans it had committed to in the past year, leaving dozens of US startups and scale-ups cash-strapped. Secondly, this has created further mistrust of the banking system and neobanks, which have already suffered from the BTC and FTX crisis in recent months.

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Opportunities for European Tech

The situation is fragile and uncertain for the US tech sector, and this creates an opportunity for Europe. Culturally, Europe is more financially conservative and risk-averse. In sharp contrast to the US, European tech businesses raise capital but very rarely raise debt. In a way, by being more conservative on cash, they are in a better situation to resist the crisis, which extends way beyond SVB. The Ukraine war and the subsequent inflation and rise in interest rates are something Europe is better prepared for.

Secondly, the difficulties the US tech ecosystem is facing creates an opportunity for European competitors to survive and maybe even take over and grow into the US market. From e-commerce to climate tech to SaaS models, if US businesses are suffering, well-funded and financially healthy European counterparts are well positioned to take on the US.

Lastly, the first signs of this industry-wide crisis in the tech sector date back to the last 12 months, where foolish valuations were feeding a massive bubble in the tech sector. As a result of this appetite for investing in tech, many companies were offered cash they didn’t need and ended up taking it as a security. In Europe, companies benefited from this overvaluation trend and also ended up taking cash, but with a much more conservative approach to spend. This has worked out well for Europe, as they are now better equipped to weather this storm.

Conclusion

SVB’s crisis could create an opportunity for European tech businesses to take a leadership role in the industry. The cultural and financial conservatism of European tech businesses puts them in a better position to resist the crisis than their US counterparts. This crisis could create an opportunity for well-funded and financially healthy European businesses to take over and grow into the US market. The next few months will tell, but Europe looks better equipped to weather this storm.

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