The last couple of weeks has been incredibly busy in the world of finance, with the annual Spring Budget announcement last Wednesday being a real key interest for all those working in the sector, as well as business owners and self-employed freelancers and contractors across the UK. On top of the budget, we’ve also been digesting the news about Silicon Valley Bank and the buyout by HSBC.
The sudden and swift collapse of SVB was a contrast to the Chancellor’s budget this side of the pond just a few days later, billed by the government as the “growth budget”.
HSBC’s recent decision to acquire Silicon Valley Bank’s UK operations is a significant development in the financial industry and one that has been across the news. It has the potential to reshape the landscape of banking for technology startups and innovators.
If you work within the tech industry, you may have heard of Silicon Valley Bank before now, however in the grand scheme of banking, it had fewer than two dozen branches, although billions of dollars of deposits.
It generally catered to a target audience of startups and tech firms, which is why HSBC seemed keen to invest, with only 5 hours of due diligence work. HSBC paid only £1 for the lender, with a balance sheet of £8.8bn and deposits worth £6.7bn.
The move comes as HSBC seeks to expand its presence in the technology sector and calmed the fears of tech companies banking with SVB UK.
Silicon Valley Bank has long been a key player, providing financial services to tech companies from seed funding to IPOs, and there were concerns firms would be unable to access funds.
However, it has caused concerns across the banking industry, especially regional banks. Any money currently in the bank is almost definitely fine, but some people online are continuing to be concerned that banks are in trouble.
What actually happened to Silicon Valley Bank?
Silicon Valley Bank was founded in 1983 in Santa Clara, California, calling itself the “financial partner of the innovation economy”. It became a bank for the tech sector quickly, and it claimed to bank for nearly half of US venture-backed startups as well as a banking partner for a lot of the venture capital firms that fund startups.
The demise came after a bank run saw signs of trouble begin to emerge in the second week of March. Bank deposits from clients are invested in safe securities, like bonds, but as the Federal Reserve increased interest rates, those bonds were not worth as much as previously. Usually, an increase in interest rates wouldn’t pose such an issue, as SVB would simply wait for the bonds to increase, however a slow down in deposits being made and clients withdrawing money meant SVB landed themselves in trouble.
The parent company, SVB Financial Group, said it would undertake a $2.25 billion share sale after selling $21 billion of securities as a loss of $2bn, however this spooked markets and clients even more and the share price of SVB Financial plummeted.
By the end of the week, trading of the stock was stopped completely and reports started coming in about SVB selling up. Big name chairmen told their companies to pull money out of the bank whilst they could. By about midday Friday, regulators shut down the bank, with HSBC acquiring the UK division.
Should we be worried about our banking?
If you are a startup, contractor, freelancer or you’re self-employed, you probably have some form of savings to fall back on in case a contract isn’t renewed, or you find yourself having a quiet couple of months.
With many worrying about where their investments currently sit, it’s positive to hear that the overall banking industry is likely fine. In fact, if panic had not set in and money started being withdrawn, SVB would probably have been fine too.
What does HSBC’s acquisition of Silicon Valley Bank’s UK operations mean for start-ups and the tech industry as a whole?
Better Service for Startups
HSBC’s move into the tech sector now means that a major global bank has a strong presence within that industry. Because of the increased competition, this could now lead to better services and lower fees for tech start ups and innovative freelancers ready to make a name for themselves.
More funding options
HSBC will gain access to a wide range of technology startups and innovators, many of whom will be seeking funding, leading to more funding options for tech companies. Being a global bank means HSBC can offer more financing models that were not available on the market before, giving startups more opportunities.
Access to the international market
Tech startups and innovators could expand into a new, international market thanks to HSBC’s global network. This will provide valuable opportunities for the industry, as the combination of global reach with SVB’s tech expertise will offer financial and strategic support for tech companies looking to expand globally.
Are there any negatives to come out of this?
Despite there being so many benefits, there are also some potential challenges that could arise from HSBC’s acquisition. One concern is that the move could lead to the consolidation of the technology banking sector, reducing competition and limiting the options available to startups and innovators.
Overall, HSBC’s acquisition of Silicon Valley Bank’s UK operations is a major development in the banking sector and it has the potential to transform the landscape for tech startups and innovators. At Gorilla, we work with startups across a number of sector.
Starting a new business is an exciting venture and is a path often taken by individuals pursuing a business plan they are truly passionate about. With potentially more opportunities opening up for these people, it’s an exciting time. If you can streamline how you work from the very beginning in all facets, including your accounting, you can give yourself a running start and HSBC’s move into the tech sector could have a significant impact on the industry as a whole.
As the technology sector continues to grow, it will be interesting to see how HSBC’s move will affect the banking industry and the broader business community.
How Gorilla can help you as a startup
Gorilla Accounting is a specialist accounting firm that provides services specifically tailored to contractors, freelancers and startups across the tech industry and beyond.
As a startup, you can choose to be a sole trader or a limited company and the choice you make at this stage can have a big impact. From taxes and expenses to shareholders, the type of company you form will need to be carefully considered.
We are very knowledgeable about the different types of business structures and their advantages and disadvantages, meaning we can advise on the best company type for you.
We can also do all the legal work for you when it comes to company formation. We can help with all the paperwork so you can focus on other aspects of your business.
To learn more about how Gorilla can help you, call us on 0330 107 9675 and fill in our join us form, here.
