Analysis Today: What will be The Future of Venture Capital after Silicon Valley Bank Collapse?

The collapse of Silicon Valley Bank (SVB) has had a huge impact on the venture capital industry, sending shockwaves across the entire startup “ecosystem”. The collapse has forced many to seek new directions and alternative credit solutions, as well as adjust their business plans.

Fortunately, First Citizens Bank (FCB) has stepped in to buy back all deposits and loans of SVB. This move has ensured that startup loans, which are significant to the future revenue prospects of startups, will still be available. However, with the government raising interest rates, borrowing costs may still be higher than before if alternative credit solutions are not available.

Former SVB employees have also tried to apply their Silicon Valley network mining and investment know-how to JPMorgan Chase. But it's unlikely that the same services that many large banks are trying to provide will replace SVB.

Startups have survived on low interest rates and excess liquidity during the COVID-19 pandemic but when the US Federal Reserve started to raise interest rates, startups were forced to adjust their business plans. Mr. Geary has commented that the next 12 to 24 months will be very difficult, as capital availability decreases and borrowing costs will be higher if alternative credit solutions are not available.

Moreover, venture capital investments have started to decline from a peak recorded in the fourth quarter of 2021. The slowdown in venture capital will lead to a slowdown in venture lending, meaning Silicon Valley will face an increasingly difficult fundraising environment.

The banking crisis, however, has created new opportunities for financial institutions in Silicon Valley. Mercury, a financial technology company, launched a deposit protection service of up to $5 million, providing 20x the FDIC's insurance limit. Meanwhile, JPMorgan is working to fill the post-SVB void through the acquisition of investment analysis software provider Aumni.

The collapse of SVB has shaken the foundation of the venture capital industry, leaving many startups searching for new directions and alternative credit solutions. While some financial institutions are taking advantage of this situation, only time will tell whether they can provide similar services as SVB. Startups will need to remain agile and adaptable to survive in this rapidly changing industry.