Inside the Silicon Valley Bank UK crisis

The collapse of SVB UK would have been an “extinction-level event” for his business, one entrepreneur says.

Ash Ramrachia was at work at 3pm on Thursday afternoon when his phone pinged with a message from a friend: “How much do you have in Silicon Valley Bank? Just got a note that they are in financial distress.”

The answer, for Ramrachia and many other entrepreneurs in the UK technology sector, was almost everything. By some estimates as many as 60 per cent of British tech start-ups banked with Silicon Valley Bank UK – widely known, like its US parent company, as SVB. And many, like Ramrachia, had signed contracts that meant they used SVB exclusively for their business.

For Ramrachia to start his company without SVB would have been much more difficult. He’d worked for the online retailer the Hut Group for eight years as chief people officer, and had seen how difficult it was to recruit people with the specific skills – such as knowledge of specific programming languages or databases – that were needed for certain tech jobs. His answer was a new kind of tech-focused recruitment company that finds capable people and trains them in the roles that employers need them for. He called the company Academy.

Finding a high street bank that would have allowed Academy to open a business account, let alone borrow money, when the company had “no customers, not even a product – just a vague idea of the direction we were travelling” would, he said to me, have been “absolutely impossible”. But with the support of the venture capitalist Saul Klein, Academy was able not only to bank with SVB, but to use a venture debt facility that allows it to borrow to spend on development without needing to sell off chunks of the company. SVB, he said, was “the only player in town” when it came to financing an ambitious new tech company.

But the terms of the venture debt deal meant Academy was also required to deposit all of its operating cash with SVB. Into Thursday night, others in the tech industry urgently shared news of SVB’s problems on a WhatsApp group: “Are you moving your cash out of SVB?”

In the US, depositors were rushing to take their money out of the bank after its shares had plummeted by more than 50 per cent following the revelation of a $1.8bn loss on the sale of long-dated debt securities it had bought in what amounted to a misguided $91bn bet on interest rates remaining low.

“My friends were saying, ‘We’re moving all of our cash out, now,’” said Ramrachia. But Academy and other start-ups who had signed exclusivity contracts with SVB would have breached their covenants with the bank if they’d withdrawn their funds. If the news story blew over, they could be in serious trouble with the only bank in the UK that served their industry; if the bank went under, they’d lose all of their operating capital.

[See also: Who killed Silicon Valley Bank?]

The following morning, Ramrachia and his team decided to withdraw their funds anyway. “We didn’t want to add to the issue, the stampede to the door, and be part of creating a bank run. Equally, you can’t be last out and be left holding the bag.” He called his account manager at SVB. The conversation was calm and polite: Ramrachia told SVB that Academy would withdraw its own capital but leave the money it had borrowed in its account, which the account manager said seemed “pretty reasonable”, although a breach of terms. But when the Academy team opened the SVB website, something was clearly wrong.

For an increasingly tense period on Friday morning, Ramrachia was “just pressing refresh” on the bank’s website, until finally he was able to access the Academy account and execute the transfer “that’s taking ages… and then finally, it’s done”. But it wasn’t done: in the account to which Ramrachia had sent almost all of his company’s operating capital, the money did not appear.

Academy is not a huge company. It has 20 employees, and had raised £4.5m so far. With 96 per cent of its available cash now frozen in SVB – or worse, missing somewhere between accounts – Ramrachia was forced to ask urgent questions: “How am I going to make March payroll? That’s two weeks away… How much cash can we scrabble together? What are the invoices we have with customers, [and] can we call them and expedite them? What bills can we defer?”

In a WhatsApp group used by tech entrepreneurs, Ramrachia saw messages from “dozens and dozens of other founders, all saying the same thing – did you get your money away?”

On Friday afternoon, Ramrachia joined an online meeting with around 300 other technology businesses that banked with SVB, and the CEO of SVB UK, Erin Platts. Platts began by trying to reassure her customers that SVB UK was a separate institution with a ring-fenced balance sheet, but the WhatsApp group erupted again: the news had just broken that SVB in the US had been placed into receivership and had its assets seized by the Federal Deposit Insurance Corporation. A few hours later, the Bank of England followed suit, beginning insolvency proceedings against SVB UK.

“Friday night was an extremely tough, sleepless situation. You haven’t got the cash out. Your bank is now insolvent, and the Bank of England is in control. And you have absolutely no idea what the outcome is going to be.”

Throughout Saturday, Ramrachia tried to put together a plan to keep his company solvent through March and April; if he could, he believed an emergency funding round could keep Academy in business. But so many of the UK’s tech start-ups were in the same position; not everyone would have been able to secure the funding to go on.

“It would have been an extinction-level event,” he said, in reference to a tweet by the Y Combinator chief executive Garry Tan. That would have applied not just to Academy but to swathes of the innovative, high-growth companies that underpin the UK tech sector. With this in mind, hundreds of founders, marshalled through the same WhatsApp groups, shared their knowledge and contacts to appeal to the Treasury and the Bank of England to find a buyer for SVB UK – an imperative that quickly became known among civil servants as “Project Yeti”. Klein, co-founder of the tech-focused venture capital firm Local Globe, met with the Chancellor, Jeremy Hunt, the shadow chancellor, Rachel Reeves, and Treasury officials to “explain the size of the problem”. Around 500 businesses emailed the Treasury with details of the money they stood to lose and the implications for jobs and growth.

On Saturday night, Ramrachia and his fiancee held a party at their home to celebrate their engagement. “I hadn’t slept at all,” he said, so he spent the evening “trying to pretend to be normal. It was pretty tricky.”

By Sunday morning, as he watched Hunt being interviewed on the BBC and Sky News, there was no indication that a buyer had been found. Ramrachia began drafting a note to his investors, detailing the company’s “very high exposure” to the SVB collapse, and a plan to come back from a situation in which none of the company’s money could be recovered. “But by Monday morning, the picture had changed again.”

At 3am on Monday, HSBC agreed to buy SVB UK for £1, guaranteeing the bank’s £6.7bn in deposits. The news was greeted with “sheer relief”. But the episode has changed how the tech sector sees risk. Many of the UK’s young tech founders weren’t working during the 2008 financial crisis.

“When you’re an early-stage start-up… you don’t have a finance team, you’ve got all of these other issues… the one thing you think is a constant, that’s secure, is your bank. Now, the foundations have been shaken.”

[See also: A reckoning for Silicon Valley]