Economic Watch: Bank collapse feared to leave "huge gap" in U.S. tech start-up ecosystem-Xinhua

Economic Watch: Bank collapse feared to leave "huge gap" in U.S. tech start-up ecosystem

Source: Xinhua| 2023-03-18 15:52:30|Editor:

AUSTIN, United States, March 18 (Xinhua) -- "It's definitely been shocking," Michael Wenning, an American tech start-up founder, told Xinhua, predicting that "a huge gap in the ecosystem" for U.S. start-ups will be left in the aftermath of the Silicon Valley Bank's (SVB) sudden collapse.

U.S. President Joe Biden vowed earlier that all deposits in the SVB were guaranteed, delivering a welcomed relief. However, saying farewell to the largest lender in U.S. high-tech hotbed proved not so easy. It appears that many tech start-up founders are worrying about the future of their ecosystem.


Dozens of tech start-up founders like Wenning from the United States and abroad gathered at the ongoing South by Southwest Conference and Festivals (SXSW) in Austin, Texas, with their innovative projects displayed at the 2023 Pitch Showcase for winners, finalists, and alternates.

About two years ago, Wenning chose the SVB when launching his company Wenn in Dallas to re-engineer the job search process with AI technologies. The start-up-focused bank offered him not only a check for 50,000 U.S. dollars but also many programs that help startups, as well as discounts with software vendors.

"Rome wasn't built in a day. You have to start small and get bigger, and SVB really helps people (start-ups) who are small get bigger. And now I don't know what they'll do without him (the bank)," Wenning said in an exclusive interview.

"So I think there's going to be a very, very big ripple effect in the start-up ecosystem in this country," he said. "Now this generation will have trouble getting funding. They'll have trouble securing loans because the bigger banks don't want to help them."

Melinda Wittstock, founder of podcast platform Podopolo which empowers content creators to profit from their podcasts, said the SVB is definitely not the only choice for start-ups, "but startups do need that kind of banking infrastructure for sure."

"If there's not a replacement bank that does the same thing, it will be hard," said the Los Angeles-based serial entrepreneur who has founded five firms. "More mature institutions don't want to take on that debt without seeing the right balance sheet."

"There's so much risk to the stability of our small business community in the future, especially the start-up community if we don't figure out how to solve that," said Kenneth Woodard, the head of product development at REACH Pathways, which connects students, employers, colleges, and community partners in the virtual world.


Wittstock noted the lingering aftershocks of the SVB failure, saying "we're just all watching with bated breath because there are several other regional banks that are having these same problems."

Scarlett Spring, CEO and co-founder of TapRoot, a Phoenix-based start-up that has created Ella, a digital solution reducing dementia-related behavioral expression for seniors and their caregivers, feared implications rippling through other banks.

"I don't think that this is terrible for the (U.S.) economy, because start-ups are a small part of the economy. But it's terrible for start-ups in the technology field," she said, calling the fall of the SVB "a sign that there is a fundamental problem with liquidity."

Spring said: "A lot of investors have their funds in the SVB... They lose a lot of their money because it's not all covered by insurance. That is going to prevent them from being able to invest in companies."

For many start-ups, if they fail to receive new investment in time, "they're done," she said.

"We're already going through a recession. We already have rising inflation and the cost of everything. Our budget went up a million dollars this year... We can't continue to offset that," Woodard lamented.


For years, Silicon Valley has been widely seen as the U.S. innovation hub, impressing the world that "it's always growing. It's never dying," said Wenning.

"So to see the biggest bank in that area fail is certainly a shock to everyone," he said.

"Sacramento's on fire," Jason Schenker, the chairman of the Futurist Institute and president of Prestige Economics, exclaimed to his SXSW audience one day after the SVB collapse. "Sacramento on fire is what everyone is worried about right now."

In the aftermath, regulatory scrutiny will increase dramatically in the next 12 months. Cash will be favored again as investors are seeking less risky assets, Schenker said at an SXSW session, adding that the SVB failure presents contagion risks as "a really big pain point".

"Is this the camel's nose under the tent of a broader financial crisis brewing? Or is it an isolated incident? " he questioned. "Even if it's isolated, there's never just one cockroach."