The Big Story: SVB fallout puts startup banking needs in the spotlight
In the wake of last week’s collapse of a key startup-facing bank, many in the startup ecosystem are concerned about the banking options and funding landscape for startups across the country. Last week, California regulators and the Federal Deposit Insurance Corporation (FDIC) shuttered and placed into receivership Silicon Valley Bank (SVB), a mainstay bank for the global startup ecosystem. At the same time, startups scrambled to move funds and were unsure if they’d have the capital to pay their employees this week. By Sunday evening, the federal government announced it would guarantee all deposits, including those covered by FDIC insurance and uninsured deposits. Despite the needed guarantees, the banking sector remained on shaky footing this week.
SVB provided banking services for almost half of U.S. venture-backed tech companies. While the bank had up until recently benefited from a booming startup ecosystem, the recent combination of high interest rates, the eroding value of long-term bonds that they held, and slowed VC investments in startups put the bank on precarious footing. Unable to raise the funds needed to cover a run on deposits, SVB ultimately collapsed.
SVB’s collapse has already had real and detrimental consequences for startups in communities across the country—especially for companies founded by underrepresented entrepreneurs who already face significant barriers accessing capital in the startup ecosystem. Even after the deposits were guaranteed and made accessible, startup founders are having to make tough decisions for their companies, including moving capital to banks less suited to their needs. Startups may additionally face increased difficulty when raising future capital as a result of concerns about the health of the ecosystem following the collapse. Importantly, SVB was a critical source of venture debt used by many startups to give them a longer cash runway. And while other nonbank lenders are trying to fill that role, the outcome is still unclear. The resulting uncertainty in the U.S. banking system and the void created by SVB means thousands of startups and hundreds of thousands of startup jobs remain at risk.
Policymakers must continue to work to prevent colossal fallout from the collapse, or else they risk irreparable harm to startups and overall U.S. competitiveness. The startup ecosystem is worth supporting, and with startups in every community across the country contributing to economic growth, policymakers must ensure this doesn’t happen again with other smaller and regional banks.
Join us next Friday for lunch and a panel discussion on startups and data privacy laws. Join Engine next Friday, March 24th for lunch and the release of a new report on the impact of state privacy laws on startups. The report speaks to several issues in the federal data privacy debate, and we’ll break it down with a panel of startups and policy experts. The lunch and panel discussion will take place in 1310 Longworth House Office Building from noon to 1 pm. Register here.
Policy Roundup:
Survey shows immigration restrictions harm economy, innovation. A new national survey found that restrictions on immigration leads to the loss of U.S. jobs, workers, and resources, which are being steered toward other countries more hospitable to immigrant workers. According to the survey, 82 percent of employers experienced a foreign employee leave their company because of strict U.S. immigration policies, choosing to relocate elsewhere. Immigrants are critical to the U.S. startup ecosystem, founding innovative companies and filling gaps in our STEM talent pool. Engine has long stated the need for Congress to improve pathways for high-skilled immigration, including startup visas, so entrepreneurs can launch and grow their companies in the U.S.
Iowa poised to be sixth state with data privacy law. This week, the Iowa legislature passed a consumer data privacy bill, likely adding to the patchwork of state privacy laws. Iowa is the latest in a series of states forging their own privacy laws—including five states with unique privacy laws in effect or soon effective. While states continue to deliberate over establishing their own privacy laws, startups are still waiting for a uniform federal privacy framework, which is needed to provide consistent protections for Internet users and clear obligations for startups nationwide.
How policymakers can create seats at the table for women founders. For Women’s History Month, Lauren Marturano, the Founder and CEO of Charlotte-based startup Zinnia—a software company that provides offsite and corporate event planning services for organizations—wrote an op-ed for Women’s Advance NC exploring issues facing women entrepreneurs. Lauren underscored how women are increasingly launching their own job-creating startups, yet they remain underrepresented in the startup ecosystem and called for legislative action to make the startup ecosystem more equitable.
Kentucky passes sales tax law impacting digital services. This week, the Kentucky legislature passed two bills that could create taxes on services used by startups. The legislation would lower the state’s sales tax by expanding the scope of services covered and implementing a six percent tax on telemarketing services—which includes modes of communicating with customers like social media. This is one of the latest state efforts to tax digital services which are almost certain to be passed through to end users and could disproportionately impact small companies, like startups.
Startup Roundup:
#StartupsEverywhere: San Francisco, California. Vassil Mladjov is the chairman and investor at Tallio.io, a startup that delivers targeted Shoppable ads to TV viewers. Tallio aims to make the experience of watching TV more relevant to the viewers by personalizing the ad experience. We spoke with Vassil about the history of Tallio and how it pivoted from a live stream shopping platform to a personalized TV advertising system, as well as the current landscape of data privacy laws and the implications of allowing companies to copyright their application programming interfaces (APIs).
