Nigerian Startups In Panic As Silicon Valley Bank Collapse

Nigerian Startups In Panic As Silicon Valley Banks Collapse

Nigerian tech space has come under pressure as the news of the collapse of Silicon Valley Bank in the United State hits the air and even more as the United States Treasury Secretary, Janet Yellen disclosed that the United State Government would not bail out the bank.

Although HSBC, a US financial behemoth, has acquired SVB UK, tech firms in Nigeria, which are some of the biggest players in the African tech ecosystem, will be troubled by the news.Experts are saying the impact this will have on African nations’ project initiatives will not be significant, however, the closure of the SVB will affect the booming local startup sector.

Nigerian startups which have raised a total funding valued at $507 million from January to August 2022, with over 140 fintech startups in the country as of 2021, might not have so much to worry about.

Adedeji Olowe, founder, and CEO of Lendsqr, a fintech company were quoted earlier saying most startups may have funds trapped in the bank, but the funds have not disappeared.

Also, the co-founder of Carbon, a digital bank, Ngozi Dozie, commented, “VCs make investments and call capital from investors – this money is used to repay SVB loans. So, funds for investment are not in SVB. But funds for VCs to operate, pay salaries and management fees will be in SVB.”

Janet Yellen in an interview with CBs ” Face the Nation” has provided insight into what the government’s next move will be but she noted that this situation with SVB was different from the financial crisis which happened 15 years ago and had banks give out bailouts to protect the industry.

She said, “We’re not going to do that again, but we are concerned about depositors, and we’re focused on trying to meet their needs.”

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She also assured that this would have no domino effect on American investors on Wall Street. She said “The American banking system is safe and well-capitalized well-capitalized”

She added that “It’s resilient.” Silicon Valley Bank, based in Santa Clara, California, is the nation’s 16th-largest bank. “It was the second biggest bank failure in US history after the collapse of Washington Mutual in 2008. The bank served mostly technology workers and venture capital-backed companies, including some of the industry’s best-known brands.”

Silicon Valley Bank began declining when its clients, which consisted of tech companies, could not get the cash they needed for financing and started withdrawing their deposits. This made the banks sell bonds at loss to cover the withdrawals, thereby causing the largest failure of one of the US oldest financial institutions.

Janet Yellen also disclosed other factors that led to SVb collapse, she said that rising interest rates which have been improved by the Federal Reserve to handle inflation were the major problem for SVB. The bank’s assets, such as bonds or mortgage-backed securities, lost market value as rates kept climbing.