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| 1 minute read

Should I stay or should I go? Startups clash with uncertainty over SVB debt.

The collapse this week of Silicon Valley Bank ("SVB") certainly reminds many of us of the early days in the 2008 mortgage foreclosure crisis. While I'm not convinced that this is a Lehman Brothers moment (at least yet) or that there is much systemic risk from the SVB collapse, it will certainly not be without its challenges for many businesses. The startup and venture capital community will no doubt be disproportionately impacted and that pain will reverberate throughout the ecosystem.

One challenge that is quickly coming into focus is how the collapse of SVB and presumed liquidation of its assets may impact venture debt that many startups have taken on. These loans are often used to manage cashflow while these young companies acquire inventory and wait on accounts receivable or net payment terms. While the FDIC has at least quelled concerns for the time being over deposit accounts, the future of venture debt with SVB faces far more uncertainty. This is particularly true for revolving debt and lines of credit that SVB has extended to startups and other companies. 

These loans likely will be sold to another bank. In the meantime however, many startups may not have access to these credit facilities which certainly may present cash flow challenges. Once they are sold, there is no guaranty that the acquiring bank will continue the debt with the same terms. While most startups are focused on making sure that payroll is getting paid, and that they have access to their deposit accounts, their attention will likely turn to how they can manage access to venture debt--and how they move forward making sure they have access to necessary capital. 

SVB borrowers face a quandary: Wait and see, or start afresh?


startups, technology, svb, venture, debt