Banks are international in life and national in death. But finance isn’t the only place where success is global and failure is a decidedly local problem. The tech sector has got the same idea.
The UK start-up fraternity has just had its second emergency government rescue in three years. As the world shut down in 2020, the government saved start-ups from extinction by pumping money matched by venture capital investors into the sector. The Future Fund eventually invested £1.1bn, more than four times originally intended.
Three years later, and facing another “existential” threat from overseas, the government has stepped in to ensure cash-burning tech firms can access their bank accounts, pay their staff and stay afloat.
No taxpayer money is involved in the transfer of the UK arm of Silicon Valley Bank to HSBC for £1; bank investors are being wiped out. But a government-engineered fire sale, which ran through the night and required HSBC to get some regulatory waivers on ringfencing requirements, certainly amounts to a public rescue mission. Chancellor Jeremy Hunt had suggested that in the event that a deal couldn’t be found there would be liquidity support or a guarantee for depositors in SVB UK, effectively propping up start-up firms and their venture capital backers.
Hunt was clear that this was a tech crisis rather than a banking crisis. The UK arm of SVB had about £7bn in deposits and 3,000 customers, who also included lots of biotech start-ups. (Saviour HSBC is more than 40 times larger in terms of UK deposits). The SVB failure in the US has forced regulators to close Signature Bank, with concerns that uninsured depositors would pull funds from other lenders. There were, doubtless, some nerves about whether the confidence crisis that did for SVB UK would spread, particularly to other fintechs or neobanks likely to have exposure to SVB and the same start-up community.
But it was the tech sector shouting loudest for help. This was about saving “some of our most important companies”, said Hunt, “our most promising and exciting businesses”. SVB UK wasn’t too big to fail but it may have been too focused on a politically-favoured sector. It’s hard to imagine the Bank of West Country Widget Makers getting the same treatment.
The tech world’s general fetishisation of West Coast culture is part of this story. An estimated 30 to 50 per cent of UK start-ups banked with SVB UK, with particular concentration at the top tier venture capital firms. That owed something to a tight-knit tech network, something to the fact that SVB was active in pursuing start-up business, and a lot to its name. Who wants to be with Midland, the historic brand almost resurrected when HSBC created its UK ringfenced bank in Birmingham, when you can go for Silicon Valley instead?
Indeed amid the expressions on Monday of relief and gratitude, there were already some quiet grumblings about whether big, lumbering HSBC would be as nimble and entrepreneurial as tech visionaries require.
The pandemic was act of God stuff but the tech sector at least has to consider its own risk assessment with SVB. Business bank accounts may typically exceed deposit insurance limits, especially the UK’s lowly £85,000. But you can bet they’ll be better diversified from here. The California, tech-native branding came with financial risks that probably weren’t well considered or understood.
The UK tech sector has been backed up and bailed out by a country it sometimes appears impatient to escape. The government should, absolutely, redouble efforts to make sure the London listing regime and research offering works for tech companies, and that UK policy supports innovation. But everyone knows that founders also seek out US VCs and Nasdaq listings because that’s what, in their view, proper tech companies do.
Wise, the money transfer service which has been one of the better London tech listings in recent years, turned down early, big name backing from US venture capital because it required moving to California. “We told them it makes no sense — we have a business going in Europe,” said co-founder Taavet Hinrikus.
Perhaps the Great British Tech Rescue might prompt others to make a similar choice. Either way, the UK government shouldn’t be shy of reminding them of it.