TL;DR
Silicon Valley Bank (SVB), which helped tech companies and startups with banking, recently fell apart and the government took over. This hurt a lot of companies, like Roku, Circle, Roblox, BlockFi, Compass Coffee, and Camp. The bank took risks and may have made bad choices, which caused it to fail. Many companies had to quickly find new ways to get money to keep going.
Table of Contents
Overview
Silicon Valley Bank (SVB), which provided banking services to tech companies and startups, recently failed and was taken over by the government, which was big news. The bank’s failure had far-reaching consequences for many companies that had deposited funds with SVB, including popular firms such as Roku, Circle, Roblox, BlockFi, Compass Coffee, and Camp.
This article outlines what happened to silicon valley bank, what caused the bank to fail, and how the collapse of SVB affected some of the companies that had their cash reserves in this bank.
Background on Silicon Valley Bank
SVB is a financial institution that provides banking services to startups, tech companies, and venture capitalists. SVB was founded in 1983 and has been a prominent player in the tech industry for decades. It’s been known for its close ties to Silicon Valley and for its willingness to take on risky clients that other banks might not consider.
Surprise Filing and Government Takeover
Surprise Filing and Government Takeover
On Wednesday, March 9, 2023, SVB made a surprise filing that revealed it had sold $21 billion in assets and was unloading stock to raise money. The announcement of SVB’s $21 billion asset sale and stock unloading came as a surprise to many and left the bank’s clients worried. On Friday, the bank collapsed, and the federal government took over its operations.
How SVB’s Collapse Affected Companies
Roku
Roku, a popular streaming device and platform, had deposited about $487 million of its $1.9 billion cash reserves with SVB. Over 26% of the company’s cash was held by the ban as of Friday. The collapse of SVB left Roku scrambling to find alternative banking solutions.
Circle
Circle, a payments technology firm, had deposited $3.3 billion of the $40 billion of its USD Coin (USDC) cryptocurrency reserves with SVB. The company was able to recover most of its funds, but the collapse of SVB still had an impact on Circle’s operations.
Roblox
Roblox, an online gaming platform, had deposited about 5 percent of its $3 billion cash reserves with SVB as of Feb. 28. The company had to quickly move its funds to other banks to avoid any disruption to its operations.
BlockFi
BlockFi, a defunct crypto lender, had deposited $227 million with SVB. Prior to the bank’s failure, the company was already having financial difficulties; the loss of its cash at SVB further made matters worse
Compass Coffee
Compass Coffee, a D.C.-based coffee business, had been severely impacted by the collapse of SVB. The company had deposited most of its cash reserves with the bank, and it was left struggling to pay its employees and vendors.
Camp
Camp, a New York-based toy store, had also deposited most of its cash reserves with SVB. When the bank failed, the company couldn’t use its money. So, it had to find other ways to get money quickly to keep operating.
What Caused SVB to Collapse?
High-Risk Clients
One reason why SVB collapsed is that they were willing to work with companies that were very risky, like startups that weren’t making money yet. Although it had previously worked, doing so increased the bank’s failure risk in comparison to other banks. Even though this strategy had worked for the bank before, it also made the bank more vulnerable to risk than other banks.
Mismanagement
There were also allegations of mismanagement at SVB. Some people think that the leaders of the bank made bad choices which caused the bank to fail. There were worries about the bank.