The abrupt collapse of Silicon Valley Bank is expected to put a damper on innovation in the enterprise-technology market—at least in the short term—with emerging software startups facing new fundraising challenges and higher-priced loans, corporate technology chiefs, investors and industry analysts say.
Beyond added financial pressures, they say, enterprise-tech developers—which make business software tools for companies—will also have to adjust to the sudden loss of the bank as a networking hub at the center of the startup ecosystem, which has helped foster the growth of countless go-to enterprise software products and services.
“They were our very first bank when we were a little startup 14 years ago, and they’ve been very helpful throughout that,”
Matthew Prince,
co-founder and chief executive at
Cloudflare Inc.,
said Tuesday at The Wall Street Journal’s CIO Network Summit in Palo Alto, Calif.
Cloudflare, a cloud-infrastructure and security company that went public in 2019, posted $975 million in annual revenue last year. “If you don’t have bankers that understand the ecosystem of Silicon Valley, if we don’t foster that ecosystem, I think that’s a loss for the country and, frankly, the world,” Mr. Prince said.
Silicon Valley Bank, which on Friday became the largest U.S. bank to collapse since the 2008 financial crisis following a run on deposits, reopened its doors this week under government control after federal regulators enacted emergency measures to protect billions of dollars of deposits.
Most of the bank’s customers are startups and their investors.
In an email to depositors Tuesday, the bank’s newly appointed CEO
Tim Mayopoulos
said
SVB
is “open for business” and actively opening new accounts and making new loans.
But damage to the enterprise-tech innovation pipeline might already be done, as investors pull back further from an increasingly downcast venture-capital market, said
Maëlle Gavet,
chief executive of startup accelerator Techstars. Last year, venture investors committed 35% less capital globally than in 2021, according to analytics firm CB Insights.
“Fundraising, which had already become far tougher, is only going to get tougher still, especially for enterprise startups,” Ms. Gavet said, citing the high cost of product development. “A lot of enterprise companies need pretty robust financing, because they only reach profitability at a certain scale,” she said.
Techstars—which has incubated scores of enterprise tech startups over the years—has itself received financial support from SVB Financial Group, the holding company of Silicon Valley Bank, which led a $42 million equity investment in the Boulder, Colo., accelerator in 2019.
SVB is also known for providing tech startups with low-rate loans and lines of credit pegged to their equity funding, known as venture debt. If those rates were to go up under the bank’s new management—which many analysts believe is inevitable—that would hit startups across the market, whether or not they banked with SVB. Among the hardest hit would be enterprise startups, which have a high cost of product development, analysts and investors said.
“I think the cost of capital is going to be higher,”
Vineet Jain,
co-founder and chief executive of enterprise firm Egnyte Inc., said at Tuesday’s conference. “Whether directly or in terms of the number of hoops you have to jump through to get financing.”
Jonathan Lehr,
co-founder and general partner at VC firm Work-Bench, said he is hopeful that someone will step up to make sure that startups are able to access debt capital, “since that plays an important role in startup scaling.”
Mr. Lehr, whose firm has backed numerous enterprise startups, is more optimistic about startups’ ability to continue selling equity to fund growth. “VCs haven’t gone anywhere and the enterprise is still flush with many exciting investible opportunities,” he said. “Strong enterprise startups will continue to be funded.”
Outside the tech sector, CIOs and other corporate tech leaders at companies that rely on AI-powered business apps, automation and other advanced capabilities have also been shaken by uncertainty over SVB’s future, said
Tim Herbert,
chief research officer at IT trade group CompTIA.
“The fallout from SVB’s collapse is still very much to be determined,” Mr. Herbert said. “Even with the announcement of government intervention, rattled companies will inevitably take stock of their risk exposure across all facets of the business.”
Write to Angus Loten at angus.loten@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
The abrupt collapse of Silicon Valley Bank is expected to put a damper on innovation in the enterprise-technology market—at least in the short term—with emerging software startups facing new fundraising challenges and higher-priced loans, corporate technology chiefs, investors and industry analysts say.
Beyond added financial pressures, they say, enterprise-tech developers—which make business software tools for companies—will also have to adjust to the sudden loss of the bank as a networking hub at the center of the startup ecosystem, which has helped foster the growth of countless go-to enterprise software products and services.
“They were our very first bank when we were a little startup 14 years ago, and they’ve been very helpful throughout that,”
Matthew Prince,
co-founder and chief executive at
Cloudflare Inc.,
said Tuesday at The Wall Street Journal’s CIO Network Summit in Palo Alto, Calif.
Cloudflare, a cloud-infrastructure and security company that went public in 2019, posted $975 million in annual revenue last year. “If you don’t have bankers that understand the ecosystem of Silicon Valley, if we don’t foster that ecosystem, I think that’s a loss for the country and, frankly, the world,” Mr. Prince said.
Silicon Valley Bank, which on Friday became the largest U.S. bank to collapse since the 2008 financial crisis following a run on deposits, reopened its doors this week under government control after federal regulators enacted emergency measures to protect billions of dollars of deposits.
Most of the bank’s customers are startups and their investors.
In an email to depositors Tuesday, the bank’s newly appointed CEO
Tim Mayopoulos
said
SVB
is “open for business” and actively opening new accounts and making new loans.
But damage to the enterprise-tech innovation pipeline might already be done, as investors pull back further from an increasingly downcast venture-capital market, said
Maëlle Gavet,
chief executive of startup accelerator Techstars. Last year, venture investors committed 35% less capital globally than in 2021, according to analytics firm CB Insights.
“Fundraising, which had already become far tougher, is only going to get tougher still, especially for enterprise startups,” Ms. Gavet said, citing the high cost of product development. “A lot of enterprise companies need pretty robust financing, because they only reach profitability at a certain scale,” she said.
Techstars—which has incubated scores of enterprise tech startups over the years—has itself received financial support from SVB Financial Group, the holding company of Silicon Valley Bank, which led a $42 million equity investment in the Boulder, Colo., accelerator in 2019.
SVB is also known for providing tech startups with low-rate loans and lines of credit pegged to their equity funding, known as venture debt. If those rates were to go up under the bank’s new management—which many analysts believe is inevitable—that would hit startups across the market, whether or not they banked with SVB. Among the hardest hit would be enterprise startups, which have a high cost of product development, analysts and investors said.
“I think the cost of capital is going to be higher,”
Vineet Jain,
co-founder and chief executive of enterprise firm Egnyte Inc., said at Tuesday’s conference. “Whether directly or in terms of the number of hoops you have to jump through to get financing.”
Jonathan Lehr,
co-founder and general partner at VC firm Work-Bench, said he is hopeful that someone will step up to make sure that startups are able to access debt capital, “since that plays an important role in startup scaling.”
Mr. Lehr, whose firm has backed numerous enterprise startups, is more optimistic about startups’ ability to continue selling equity to fund growth. “VCs haven’t gone anywhere and the enterprise is still flush with many exciting investible opportunities,” he said. “Strong enterprise startups will continue to be funded.”
Outside the tech sector, CIOs and other corporate tech leaders at companies that rely on AI-powered business apps, automation and other advanced capabilities have also been shaken by uncertainty over SVB’s future, said
Tim Herbert,
chief research officer at IT trade group CompTIA.
“The fallout from SVB’s collapse is still very much to be determined,” Mr. Herbert said. “Even with the announcement of government intervention, rattled companies will inevitably take stock of their risk exposure across all facets of the business.”
Write to Angus Loten at angus.loten@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8