Update: The UK government announced on Sunday morning that it is working "at pace on a solution to avoid or minimise damage to some of our most promising companies in the UK” following the Bank of England’s decision to put Silicon Valley Bank UK into insolvency.
The UK government will likely step in to address the consequences of the UK subsidiary of Silicon Valley Bank being put into insolvency proceedings on the country’s tech ecosystem.
Two sources close to the government told Sifted they are confident that Rishi Sunak’s administration will make a move before Monday to ensure that SVB has liquidity and startups can make payroll.
Mid-afternoon Saturday HM Treasury released a statement saying it would hold a roundtable with industry representatives later on today "to discuss the situation and the worries they face" and that "the Economic Secretary to the Treasury has been speaking to firms affected".
It went on: "The Government recognises that tech sector companies are often not cashflow positive as they grow, and that they rely on cash on deposits to cover their day to day costs."
The statement was released after CEOs of 140 leading UK startups wrote to the UK’s Treasury chief Jeremy Hunt earlier on Saturday calling for emergency government intervention.
“This weekend the majority of us as tech founders are running numbers to see if we are potentially technically insolvent,” startup CEOs wrote in the letter to Hunt, seen by Sifted.
“Most businesses are operating on very fine margins in the current economy and the contagion from the initial insolvencies will be vast and impact the economy far beyond the tech sector.”
The fate of SVB UK
Silicon Valley Bank UK is expected to be put into insolvency from Sunday evening, barring any intervening event like an emergency buyout. This means that startups’ cash deposits with the bank are at risk; while the number of startups with accounts at SVB is unclear, some investors say as much as half of UK startups could be affected.
While many of the depositors will likely get some of their money back through the liquidation process, signatories to the letter warned the government that many startups holding most or all of their funds with SVB — usually early-stage startups — will not be able to wait and risk being forced into involuntary liquidation before they are able to recover funds.
Late on Friday evening, the UK central bank issued a statement announcing the insolvency process for SVB UK was underway after US regulators closed SVB in the US, saying: “SVB UK has a limited presence in the UK and no critical functions supporting the financial system.”
Startup CEOs warned that the Bank of England’s assessment “displays a dangerous lack of understanding of the sector and the role it plays in the wider economy, both today and in the future.”
Startups also cautioned that the collapse of depositor startups would have a huge effect on UK employment.
“If the UK tech sector sneezes, the rest of the economy will catch a cold and worse,” the letter said.
Sifted will be running a webinar next week with experts giving advice to founders on the SVB situation next week. Register interest here.
Amy Lewin is Sifted’s editor and cohost of Startup Europe — The Sifted Podcast, and writes Up Round, a weekly newsletter on VC. She tweets from @amyrlewin