Before becoming giants, the world’s most powerful tech companies began as bold, visionary ideas backed by risk capital. Without funding, those promises would remain just that—visions. For decades, the engine of that dream in the United States has been Silicon Valley Bank (SVB). It stood as one of the leading lenders fueling innovation, and its impact was felt far beyond its own walls as it helped turn early-stage breakthroughs into scalable businesses. Today, SVB’s status as a cornerstone of startup finance is in question, leaving many founders in the United States and Canada searching for what comes next.
Last Friday brought a dramatic upheaval: the bank, once celebrated as an industry benchmark, announced bankruptcy after facing a rapid rise in interest rates—the largest increase seen in the United States since 2008—and a liquidity crunch that sent shockwaves through the market. The panic among customers intensified as SVB’s main clients included startups, industry leaders, and more than 2,500 venture capital firms. Reuters reported that SVB held approximately $209 billion in assets and $175.4 billion in deposits. Alarmingly, about 90% of those deposits were uninsured, with only funds up to $250,000 protected. The safety of customer money, once a given, suddenly felt precarious.
For financial institutions, trust is paramount. Yet when SVB disclosed liquidity problems, fear spread quickly, and some of the largest venture capital firms in the United States urged clients to withdraw funds. In a single day, customers attempted to pull roughly a quarter of SVB’s deposits, about $42 billion, within 24 hours. By the following day, Friday the 10th, certain transactions were restricted, and thousands of startups found themselves temporarily blocked from accessing capital and funds.
Are startups facing extinction?
The bankruptcy of SVB places many small startups in a precarious position, potentially delaying access to essential funds. Industry observers warned that the disruption could slow innovation and reverberate through the broader tech ecosystem. Garry Tan, president and CEO of the well-known startup accelerator Y Combinator, warned of consequences for the health of early-stage companies. He suggested that the depletion of liquidity could slow hiring and product development across a wide swath of firms, echoing concerns raised by other seasoned investors and entrepreneurs. The immediate fear is not only payroll but also supplier payments and ongoing operational costs as money remains tied up or unavailable in the short term.
With deposits frozen, many startups will struggle to meet payroll and satisfy suppliers. Some investors may advance funds to help maintain momentum, but many capital sources have their commitments entangled with SVB. The ripple effect could extend well beyond the technology sector as smaller suppliers, service providers, and ancillary businesses feel the pressure of delayed payments and tighter cash flows.
While the trajectory is hard to predict, the burst of liquidity challenges could trigger a wave of bankruptcies across multiple industries. Names such as Etsy, Roku, Roblox, and Vox Media surfaced as examples of firms that had substantial sums trapped within SVB. Analysts warned that this stress event could aggravate broader market volatility and complicate access to cryptocurrency markets that rely on stable financial positioning to operate smoothly. The crisis arrived at a moment when the tech industry had already faced elevated costs, slower funding rounds, and shifting valuations, amplifying the pressures on startups to navigate uncertain times.
SVB’s founding in 1983 positioned it as a critical conduit for venture funding, helping companies like Shopify grow from fledgling ventures to global e-commerce platforms and supporting venture capital players such as Andreessen Horowitz (a16z) and Sequoia Capital in fueling early-stage optimism. Industry observers emphasize that the bank’s willingness to take calculated risks on young ventures played a key role in sustaining the innovation ecosystem that became synonymous with Silicon Valley. Many founders relied on SVB precisely because traditional lenders often shied away from unproven ideas, prioritizing speed and access to capital during the early, fragile stages of growth.
The recent downturn in SVB arrives amid a broader consolidation in the tech landscape. After years of easy access to capital, rising interest rates and inflation contributed to a period of slower investment, tighter budgeting, and tougher staffing decisions. Global layoffs have been significant, with tens of thousands of technology workers affected in recent years, underscoring the fragility of growth-at-any-cost models when funding channels tighten. Observers note that large, well-capitalized tech firms may weather the storm by drawing on alternate liquidity sources, but smaller players could face existential risks if access to working capital remains constrained for an extended period.
In the wake of SVB’s collapse, founders in Canada and the United States are reassessing capital strategies, exploring diversified funding options, and re-evaluating cash management practices. Financial professionals stress the importance of prudent liquidity planning, diversified banking relationships, and robust risk assessment to cushion against shocks in the funding landscape. The SVB episode serves as a reminder that even institutions trusted for decades can face sudden stress, and that the health of the startup economy depends on resilient financial ecosystems, transparent information, and adaptable strategies for sustaining growth during volatile times.
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