Many area business leaders optimistic in wake of SVB collapse

Federal actions over the weekend to blunt the effects of Friday’s collapse of Silicon Valley Bank came as a relief to several economists involved with technology startups in Northern Colorado and the Boulder Valley.

“Things are still a little bit in flux, but hopefully the startups will come through this without significant losses,” said Brynmor Rees, managing director of CU Venture Partners at the University of Boulder and associate vice chancellor for research and innovation. “Silicon Valley Bank was a central part of the ecosystem, but at least the depositors will have those deposits covered. Without that it could have been catastrophic.”

The federal Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. announced Sunday night that all depositors at the failed bank, which was heavily involved in venture capital and the global tech sector, would have access to all their money on Monday morning. The extraordinary intervention also was extended to depositors of Signature Bank of New York, which state regulators closed on Sunday. Separately, in a move designed to stem a possible contagion and protect banks against financial risks caused by SVB’s collapse, the Federal Reserve said it was creating a lending facility for the nation’s banks.

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“All is good,” said Mike Freeman, general partner of Fort Collins-based Innosphere Fund, part of the Innosphere technology startup incubator. “We’re quite happy to see that outcome.”

Brian Lewandowski, executive director of the Business Research Division at CU Boulder’s Leeds School of Business, agreed.

“We’re all kind of on the edge of our seats right now, and still learning what’s happening,” he said, “but the administration’s tactics to shore up the financial system make sense. We have some history to learn from in 2008.”

Lehman Brothers collapsed in September 2008 in the nation’s biggest bankruptcy, following the failure a year earlier of two large hedge funds that were burdened by investments in subprime loans and a resulting panic that froze the global lending system.

During that financial crisis, “there were investors and owners of systemic large banks that were bailed out,” Treasury Secretary Janet Yellen said Sunday on CBS-TV’s “Face the Nation.” 

“…[A]nd the reforms that have been put in place means that we’re not going to do that again. But we are concerned about depositors and are focused on trying to meet their needs.”

Susan Graf, vice president for regional development for Glenwood Springs-based Alpine Bank, said she was grateful for Yellen’s reassurances.

“Lots of people were worried on Friday,” she said, “but it’s nice that Janet Yellen made her announcement yesterday so people could enter their workday with better information.”

The bottom line, Graf said, is that “the FDIC works really well. What I think people don’t realize is that it’s not taxpayer funded. Banks pay into it. It was created in 1933, and it’s worked in every instance as it’s intended.”

She’s fielded a few calls from some depositors who are “thinking about how their accounts are structured. We have lots of tools to help depositors, but we haven’t seen many people worried today.”

SVB had offered higher interest rates on deposits and took a lax approach to commercial lending, but its announcement last week that it was taking emergency fundraising measures to avoid collapse triggered a run on its deposits, and SVB didn’t have the cash to cover the withdrawals.

“You hate to see that happen to any institution,” Graf said, “but Silicon Valley Bank was a little bit of its own universe, heavy in one industry, so they’re vulnerable to some fluctuations [that] community banks are not.”

“Everything that we’re reading indicates that there shouldn’t be that contagion because of the strength of the balance sheets in the banking sector,” Lewandowski said. “The banks’ financial positions are much stronger than they were in the financial crisis.”

Freeman said for many of the numerous early-stage startups Innosphere mentors, a bank as large as SVB was “not as popular.”

“National banks that aren’t so concentrated in backing VC companies are in a very different situation,” he said, “so I think this was more of an isolated incident. Silicon Valley is not like Chase or Wells Fargo or Bank of America.”

The speed of SVB’s collapse was “quite surprising,” Freeman said. “Silicon Valley Bank had such a brand in our industry, and was so present in venture-backed companies.” He said SVB’s collapse illustrates the perils of “having such a high concentration of venture-backed companies highly concentrated in one bank;” he advised Innosphere startups to have “a couple different business accounts in regional and national banks.

“That’s what we’re thinking,” he said, but added that the SVB collapse creates some new dynamics. “What’s the right strategy from a corporate banking perspective? I don’t think we know that answer quite yet.”

He’s definitely been taking some calls, he said.

“Investors into Innosphere’s venture-capital side have questions about the stability of the banks we use,” Freeman said. “They want more information, rightly so. A week ago, this wasn’t a question, and now it is.”

Lewandowski echoed the note of caution.

“We saw venture capital slowing down anyway,” he said. “As those interest rates rose over the last year and a half, the VC pool got a little shorter. Tech’s been under pressure in the last year, and this could perpetuate the slowdown.”

Ryan Gedney, senior economist with the Colorado Department of Labor and Employment, said Monday that he “could certainly see some impacts leaking into the state. I don’t think the state would be immune.”

Techstars, which provides access to capital, mentorship and programming for early-stage entrepreneurs, has grown into a global investment business since 2006, when it was founded in Boulder by David Brown, David Cohen, Brad Feld and now Colorado Gov. Jared Polis. It has been heavily involved in financing the startups under its wing through Silicon Valley Bank.

Techstars’ CEO, Maëlle Gavet, noted on LinkedIn that “the past 72 hours have been nerve-shredding for entrepreneurs in the Techstars network, and far beyond.”

She suggested that founders impacted by the Silicon Valley Bank crisis can navigate the coming hours and days by taking steps including controlling what they can control, activating what emergency cash management they have, keeping lines of communication open with shareholders, consider taking out short-term loans, prioritizing employees by doing everything they can to make payroll, and opening two more bank accounts and redirecting any cash receipts into them.