SVB Fall May Trigger Dangerous Round Of Layoffs.
Y Combinator claims that there is a significant danger of systemic contagion as a result of the bank's bankruptcy and that this risk has already led founders and management teams to look for safer havens for their remaining cash, potentially resulting in a bank run on all smaller banks.
Y Combinator has addressed US Treasury Secretary Janet Yellen, stating that the failure of Silicon Valley Bank (SVB) will damage thousands of entrepreneurs and over a lakh jobs. It is an American technology startup accelerator that has requested the secretary in a petition for relief and attention to an urgent critical impact on the following corporations.
- Small companies.
- Startups and their workers who are depositors at the bank.
The petition is signed by 3,500+ CEOs and founders, who collectively accounted for 2,00,000+ employees.
They are requesting that their invention be saved in the US economy, says Garry Tan. He is the President and Chief Executive Officer of Y Combinator. As reported by the NVCA, SVB has over 37,000 small enterprises with deposits of more than $250,000, he added. These funds are now unavailable to customers, and without additional intervention, they may be unreachable for months to years, according to the FDIC website. Mr. Tan moved on by arguing that 1/3rd of businesses that are exposed to the parameters of SVB have it as the only bank account in the Y Combinator group. They won’t be able to run payroll for the next 30 days as a result.
He predicts that payroll-related layoffs or shutdowns will affect more than 10,000 small enterprises and startups. If any small or average entrepreneurial establishment employs 10 candidates, this wave of SVB collapse will result in an immediate curtailment, layoff, or shutdown, hurting over 100,000 jobs in our economy’s most active area of innovation.
The critical condition of SVB!
Because SVB was unable to fulfill its obligations due to financial restrictions, the corporation was shuttered by US regulators last week. The demise of the institution was brought on by a $1.8 billion damage on the sale of government bonds, the significance of which had diminished as a result of rate gains.
Views of Y Combinator on SVB.
Y Combinator claims that there is a significant danger of systemic contagion as a result of the bank’s bankruptcy and that this risk has already led founders and management teams to look for safer havens for their remaining cash, potentially resulting in a bank run on all smaller banks. If they allow this to happen, it will have an immediate impact on the American technology industry and global competitiveness, ultimately setting the US back a decade or more as the rest of the world sprints ahead, the petition adds.
According to the petition, approximately 40,000 of all depositors at Silicon Valley Bank were small companies. If immediate action is not taken, nearly 100,000 individuals may lose their employment.
Earlier last week, Y Combinator President and CEO Garry Tan stated that the “true victims” of the SVB collapse were smaller firms that may be forced to close or lay off next week. According to the CEO of Y-Combinator, this drama will set startups and innovation back ten years. The SVB collapse is an “extinction-level catastrophe” for startups. He believes that 30% of YC firms exposed through SVB will be unable to make payroll within the next 30 days.
Series of tweets displaying the point of concern.
The actual victims of the SVB crisis are the depositors: companies with 10 to 100 employees who are unable to make payments and may be forced to close or lay off next week. If these firms have to wait weeks or months for their deposits, we will have killed a generation of American entrepreneurs, he said in a tweet thread. These depositors will not survive for weeks or months without some type of government strategy. Tan said that he suggested people contact their local congressman to get the issue on their radar.
When people say, “Well, a startup’s CFO needs to secure the money, and anything beyond $250K isn’t insured,” they’re implying that this is what one should do if you have $12.5M in cash. Can anyone envision running a company in this manner? Tan said in his Tweet.
Meanwhile, AcuityAds Holdings Inc., a Canadian advertising-tech business, experienced a huge blow as a result of SVB Financial Group’s collapse. AcuityAds Holdings Inc. has $55 million in deposits with SVB and just $4.8 million in other banks, according to a statement. According to an official statement, the government recognizes that IT sector firms are frequently not cashflow positive as they develop and that they rely on cash on deposits to fund their day-to-day operations.
On Twitter, the UK tech startup organization Coadec expressed “fear.” “is taking hold as it becomes evident that SVB’s demise will have a big impact on the UK’s digital startup scene.Â
The federal government insures deposits up to USD 250,000, but anything over that is considered uninsured. According to the Federal Deposit Insurance Corporation, insured deposits will be available soon.
The ending words describe the saga of SVB’s failure.
Banking is regarded to be the backbone of every economy since it has a direct bearing on financial and economic progress. A more robust and effective banking industry will hasten economic development. In such a scenario, a significant loss at such a prestigious bank seems to affect not just the domestic economy but also the global economy. In the third year of this new decade, let’s see what takes place next.
Edited by Prakriti Arora
