African crypto and startup industry to be affected by Silicon Valley Bank’s closure

Several African startups had funds in SVB as the bank was a lender for startups

By Staff

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The Federal Deposit Insurance Corporation (FDIC) shut down Silicon Valley Bank, the bank of choice for the majority of startups and venture capitalists, according to news reports from yesterday. The bank’s announcement that it had lost $1.8 billion on the sale of treasuries and securities was followed by a bank run, which led to the closure. Many customers decided to withdraw their money from the bank as a result of those losses because there was unclear communication.

Customers of SVB have been given the assurance in a memo released by the FDIC that insured depositors will have access to their money by Monday. Deposits are only up to $250,000 insured, and non-insured depositors will receive an advanced dividend within the upcoming week. As SVB’s assets are sold in the near future, future dividends may be paid, according to the FDIC.

Panic has been caused by the closure of SVB on the African continent, and this fear is not unfounded. Garry Tan, the president of Y-Combinator, wrote on Twitter that 30% of the startups exposed by SVB won’t be able to pay their employees in the upcoming thirty days. Over 80 African startups are included in Y-Combinator’s portfolio.  “All the startup founders groups I’m in are in full-on panic mode,” one of its founders tweeted yesterday. Everyone is moving money around. Nobody knows which banks are safe.” 

SVB was a lender to startups and required that they have deposited there as collateral, so several African startups had money there. For founders, the bank provided cashflow loans and loans secured by shares. Additionally, Silicon Valley Bank (SVB) was the preferred bank for startups prior to Mercury Bank, one of its competitors, being founded in 2019. Customers of SVB who started their businesses in Africa before 2019 may be impacted by the bank’s sudden closure. 

One of the most successful startups in Africa, Chipper Cash, was a client of SVB, according to the company’s website. The startup recently made headlines for a second round of layoffs after firing 12.5% of its workforce the year prior. An employee at a different fintech startup told TechCabal under the condition of anonymity that their company had $1.5 million in SVB and that they were unsure of how to proceed.

The crash may have an immediate impact on startups that have received funding from SVB. They might have been required to open bank deposit accounts, which held funds for operating costs, as part of the investment. Similar layoffs occurred at cryptocurrency startup Nestcoin after the collapse of one of its key investors, FTX. The majority of the startup’s operational funding was invested in the long-gone business. For businesses that the bank made a sizeable investment in, this might be the case.  

However, there are hints that the consequences might not be as severe as initially thought. Numerous observers have noted that opening bank accounts for startups with an African base has proven to be difficult. Over the coming weeks, the situation will become clearer, making it easier to calculate how the closure of SVB will affect African startups.

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