Technology firms anticipate tighter lending from banks and are seeking alternative funding paths to stabilize their finances.
The collapse of a bank always triggers concern, and the failure of Silicon Valley Bank (SVB) heightened that tension for a sector where nearly half of US startups rely on its services. The bankruptcy created a significant $6.7 billion gap in the debt market and raised questions about the survival prospects of many early-stage startups. In the United States, for example, Roku reported that about 26% of its cash held in SVB, while Roblox disclosed a $150 million deposit at the bank. Yet the concerns extend beyond borders; in Spain, the startup ecosystem is also reassessing funding strategies. As Héctor Mata, founder and CEO of the Shakers initiative, notes, some founders are beginning to reassess how banks support startups, and many are turning to diversified financing sources or cutting costs where possible to safeguard assets.
Diego López, Director of Debt Advisory at BlueBull, sums up the mood: financing will be harder to secure in a climate of inflation and high interest rates that already dampened private-capital activity. The Spain Entrepreneurship Map 2022, produced by South Summit with IE University, projects a 25% drop in the 2023 revenue for Spanish startups and a shift in the number of funding rounds as a result of the tightening market.
The industry is already feeling the strain. Experts report longer fundraising timelines and cautious decision-making as funds extend deadlines to accommodate slower activity. The ongoing fiscal year is seen as a survival test: firms that can endure through 2024 may emerge stronger, while others could shut down if profitability remains elusive and additional investment proves scarce. The prevailing view is that profitability and belt-tightening will dominate strategies in the near term.
Javier Echanove, co-founder and COO of Be Levels, concurs with the broader assessment. He notes a shift toward business models that reach profitability sooner or establish clear paths to profitability, with increasing challenges along the way. His own company achieved break-even in its second year of operation, underscoring a broader trend where funds re-evaluate portfolios and look for sustainable models rather than rapid growth built on leverage. This era marks a transition not only for startups but for the investment funds that support them, as many have moved away from chasing a few big wins toward more balanced, resilient strategies.
More banks and debt markets
Firms have acted to adapt to the new environment by diversifying their banking relationships, a move described by Javier Rivas, a professor at EAE Business School. In the United States, some companies have returned to traditional financing while others face pressure to meet obligations that require cutting expenses, including personnel in some cases. The widening gap between private valuations and public market prices further compounds the challenge, with the latest CB Insights report noting a sizable contraction in early-stage public offerings in the United States.
Approaches to debt markets are also evolving. SVB’s collapse has spurred demand for alternative debt providers, according to industry observers. GP Bullhound reports a notable potential expansion in venture debt and fintech lending, projecting a substantial increase in debt availability in the year following 2022 as investors seek to fill the funding gap left by traditional banks.
Some measure of optimism remains, with geographic and sector diversification cited as key resilience strategies for startups. Orfeo Balboa, Program Manager for First Drop funding, points to a future with ample venture capital ready to be deployed, even as rounds of 2021 and 2022 reset expectations. Investment managers like Íñigo Laucirica of Samaipata emphasize that many rounds will be bridged by existing investors to maintain continuity without needing to overhaul valuations.
Solid companies
Forecasts for 2023 hint at a tougher environment, especially if total investment trends downward. Analysts cite a potential 20% decline in overall funding versus the previous year, with 2022 investments around euros. The recent turbulence in SVB along with tensions in Credit Suisse and Deutsche Bank has contributed to a slower pace for venture capital funding as investors adopt a wait-and-see approach during mid-term evaluation. However, observers caution that a lasting drought is unlikely and that funding opportunities are still present for strong projects. In the near term, funding for startups may become more selective, favoring those with clear profitability trajectories.
Even as higher interest rates temper enthusiasm, a shift toward profitability and capital efficiency remains evident. Many investors continue to show appetite for top-tier projects, though investments in ranges like three to five million euros appear to be slower. Still, this period is expected to prove temporary. The dominant belief is that only ventures with structural risk in their financing will feel the pressure severely, while others can weather the storm by focusing on core value creation. A growing point of view from industry observers is that the talent pool has begun to recover, aided by layoffs at larger tech firms creating new opportunities in the market. The cost of capital has shifted attention back toward product development and practical execution, rather than chasing rapid expansion at any cost.