SVB Fallout On The Debt Market: Doom, Gloom, or Boom?

Doom & Gloom?

With many alarmist cries around the tech fundraising world, resounding the last week and a half, Fuse Capital would like to bring its own, more positive perspective to the table. In the Financial Times, we can hear panicked founders and VC managers alike proclaiming the freezing in fundraising, and here at FC we simply don’t see that as being the case.


“There definitely won’t be the same degree of venture debt available, the terms are worse and is that safer?”. “It’s sad — the environment is going to drastically change; it’s going to make it harder to innovate”, shared a founder in the aforementioned FT article.


One of the factors that led to the demise of many lenders, VCs and companies in the wake of SVB’s collapse was an over-reliance on SVB and its adjacent ecosystem in the first place. As uncovered, many companies kept way too much of their fundraising deposited at SVB and lacked financial diversification. This particular ecosystem revolved around blind confidence in SVB, which an audit revealed to be dysfunctional as early as 2019.


This cannot be the prism through which we see the immediate and long-term future of Venture Debt, and fundraising in general. This very one-sidedness was what led to so many being dragged down with SVB in the first place.


A senior at GP Bullhound shared: “We do have inquiries from companies who are thinking about what will happen in the next couple of months, it is possible to refinance those facilities,” “Boards are looking for options to diversify”.


And that we can get behind.



At Fuse Capital, Our View Is The Following:


The collapse of Silicon Valley Bank (SVB) in the United Kingdom has sent ripples throughout the financial industry, absolutely. However, while there has been some concern over the potential impact of SVB's downfall on the debt market, it increasingly seems that the effects may not be as severe as initially feared.


We have our eyes and ears constantly feeling the pulse of the market, we talk to Private Debt funds every day, it’s not just PR.


The truth is that SVB's collapse is unfortunate for those who had business with them.


However, for the other funds which had relatively little exposure to the Silicon Valley pundits, it felt like a timely chance to be competitive.


With less hegemony, the market tends to become more competitive, ultimately benefiting consumers. The founder quoted above might have been on the wrong track when reasoning that terms were ultimately doomed to become worse for founders.



So, Boom?


While SVB was a significant player, it was by no means the only lender in the market. Many funds had only minimal exposure to SVB, and the absence of this piece on the board may lead to increased competition among other lenders.


Moreover, many of these lenders are well-established players who have weathered previous economic downturns.


They have built up significant capital reserves, allowing them to weather short-term market fluctuations. These funds have their lending strategies and investment criteria, and they are unlikely to change these in response to SVB's collapse.


It's worth noting that while SVB was popular with many start-ups in the tech industry, it was by no means the only bank offering loans to these companies. There are many other lenders who are eager to provide financing to promising start-ups, and their offerings may be more competitive than SVBs' were. (and if not, at least safer)


Overall, it is our view at Fuse Capital that the impact of SVB's collapse on the UK debt market will be limited.


While there may be some short-term disruption as lenders adjust their strategies, it's unlikely that the market will suffer any long-term damage. In fact, the absence of SVB may create opportunities for other lenders to fill the gap, ultimately leading to a more competitive and diverse debt market.



That is, if everyone stops obsessing about indicators emerging from the idiosyncratic ecosystem SVB was breeding.