• Saturday, June 22, 2024
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How Silicon Valley Bank’s collapse affects Nigerian tech firms

Fed review pins blame for SVB failure on Trump-era rule changes

The collapse of Silicon Valley Bank (SVB) in the United States may have ruffled the global venture capital market and the entire tech industry, but Nigerian startup founders say the impact on the local ecosystem will be minimal.

US financial regulators took control of SVB on Friday, after the bank struggled to raise $2 billion to shore up a loss of $1.8 billion in asset sales.

Founded in 1983, SVB had roughly $209 billion in total assets and $175.4 billion in total deposits, according to a statement. The bank provided financing for nearly half of US venture-backed tech and healthcare companies. It also provided credit to venture capital firms.

Its failure now means that many of these companies and individuals who banked with SVB are unsure of what will happen to their money.

The Federal Deposit Insurance Corporation has said it was unclear what portion of the deposits were above the insurance limit. Experts say deciding whether depositors with more than $250,000 will get their money back will depend on the amount of money the regulator gets as it sells the failed bank’s assets or if another bank takes ownership of the remaining assets.

However, Nigeria tech startups founders say the ecosystem in Africa’s most populous country, which has attracted the most investments from venture capital firms with links to Silicon Valley, is likely to suffer minimal impact. The exceptions will be the startups with funds trapped in SVB.

“I think there are other effects, such as delayed investment because SVB was a key part of the process and investors not focusing so much on the continent because of issues in the USA,” said Ngozi Dozie, co-founder of Carbon, a digital bank.

Nigerian companies are backed by venture capital (VC) firms with ties to Silicon Valley. According to Dozie, most times when a VC wants to invest in a company, SVB will loan them the money first for a short period.

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“VCs make investments and call capital from investors – this money is used to repay SVB loans. So, funds for investment are not in SVB. But funds for VCs to operate, pay salaries and management fees will be in SVB,” Dozie said.

This may explain the recent coming together of VCs to issue a joint statement acknowledging the pivotal role of SVB in serving the startup community and supporting innovation in the US.

While they acknowledged that the failure of SVB was disappointing, they pledged that “in the event that SVB were to be purchased and appropriately capitalised, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them.”

The statement was signed by Accel, Altimeter Capital, B Capital Group, General Catalyst, Gil Capital, Greylock Partners, Khosla Ventures, Kleiner Perkins, Lightspeed Venture Partners, Mayfield Fund, Redpoint Ventures, Ribbit Capital, and Upfront Ventures.

Adedeji Olowe, founder and CEO of Lendsqr, a fintech company, said that while some startups may have funds trapped in the bank, the funds have not disappeared. SVB’s collapse affects the morale of the global tech ecosystem.

“By year’s end all these would have gone,” Olowe said.