Silicon Valley Bank: The financial sectors of the United States of America (USA) as well as Europe were thrown into a frenzy after the collapse of the 16th largest bank in the United States of America. This is the first bank to collapse since the 2008 global economic crisis, making it the second biggest bank failure in the western country.
How the Silicon Valley Bank Collapse Started
The bank was affected as a result of the high interest rate and the bank wasn’t playing with depositors’ money; the bank invested the money in safe instruments. Unfortunately, because of the way they communicated their solution to the impediment, investors panicked and therefore they all rushed to the bank to withdraw their money.
How it Affects Nigeria
With the Silicon Valley Bank’s tentacle spreading as far as Africa as well, it is not a surprise that about $1.2 billion in funding for Nigerian technology startups may be threatened and job losses will be imminent as the ripple effects of the collapse of Silicon Valley Bank (SVB), the 16th largest bank in the United States of America (USA), begins to unfold, HighJobLink Limited has learned.
The collapse of the Silicon Valley Bank (SVB) which caters to the US tech world and venture capitalists, reverberated around financial institutions across the US and in Europe, raising questions on regulations in the banking industry. The technology world was in panic mode at the weekend following the folding up of the bank, making some tech startups in Nigeria begin to weigh the option of laying off staff as operating funds get stuck.
According to Forbes, Silicon Valley Bank’s Meltdown Could Fuel Widespread Job Losses. The fallout from the troubled Silicon Valley Bank could adversely impact the job market, particularly in the venture capital, startup, and cryptocurrency sectors where SVB is a prominent lender and banker. With the ongoing white-collar recession, this fear will likely cause companies to hold off on hiring and continue laying off workers to cut costs, just in case things worsen.
On his part, the vice president, of Highcap Securities Ltd., David Adnori said: “The banking system in America is not the same as in Nigeria because if a bank is not doing well, and if it will not carry systemic consequences on the financial system in US, they will allow it to fail and then do the necessary thing.”
Nigerian IT ecosystem
The Nigerian IT ecosystem is vibrant and has about 3,340 startups as of December 2022, which is almost five times the second largest adult ecosystem in Africa, Kenya. Nigeria is home to five out of seven unicorns in Africa, making it the optimal talent development spot in Africa, which has been pivotal to Nigeria’s digital economy drive.
For instance, VC companies, like the Y Combinator accelerator, which helps African Tech startups raise funds, were impacted, as 30 percent of their portfolio companies were impacted and Nigerian tech startups were part of the portfolio companies of Y Combinator accelerator.
Regulators in the US last Friday closed the bank with the Federal Deposit Insurance Corporation (FDIC) taking over its assets and planning to settle insured depositors from today, Monday, March 13, 2023. SVB is a specialized bank that serves tech industries and startups, which in turn depend on Venture Capital (VCs) for funding. However, a turn in the global economy had reduced cash flow from VCs.
Also, the bank had invested in treasury bonds, and as the Federal Reserve raised rates the bank announced that it made a $1.8 billion loss on the sale of a portfolio of securities and sought to raise a further $2.25 billion from capital markets to shore up its balance sheet; however, its shares cratered.
By last Wednesday, investors started pulling out of the bank and customers tried in vain to withdraw their deposits from the bank, leading to its takeover by the US banking regulators.
The chief executive at General Partner of Future Africa, an early-stage venture capital firm, Iyinoluwa Aboyeji, who noted that SVB was one of the banks that knew how to bank tech companies, said many Nigerian tech companies banked with SVB for this purpose.
Aboyeji, who is also a co-founder of Andela and a former managing director of Flutterwave, said the foreign exchange challenges in the country had pushed Nigerian tech companies to commit their funds to foreign banks.
Silicon Valley Bank was one of the few banks that understood how to bank technology companies. Most of our local banks don’t understand how to bank us and that was why there were so many tech companies that went to SVB. Most of the affected startups could have kept their money at home. The only challenge is that there are lots of regulations around the restriction of foreign exchange.
In the US, banks love to game the system more than we do here: you see a lot of sharp practices coming more from the US. In all industries globally, the regulators are always playing catch-up. It is easier for the operators to try and manipulate, so it is not a matter of regulation alone. I am not saying regulation is lax, but at the same, time it also has to do with the operators who need to see that if things go south, they will be liable and the business will be impacted.
