SVB collapsed – but will the UK space industry feel it?6th Apr 2023
What was once the 16th largest bank in the United States, and a trusted institution for tech startups, Silicon Valley Bank (SVB) has now become the second-largest bank failure in American history. While some US-based space companies had large sums of money in SVB and have expressed being impacted by the downfall, the UK space industry may remain somewhat unscathed by the failure – at least for now.
What was SVB and what happened?
In short, SVB was headquartered in Santa Clara, California, with offices in 15 US states and several internationally, including the UK. According to the company, it was founded in 1983 and was mostly known for its work with startups – in fact, 44% of venture-backed technology and healthcare IPOSs in 2022 were clients of the SVB.
However, things started to go downhill for SVB in March this year. As the Federal Reserve increased interest rates due to high inflation, there was a major ‘bank run’ on SVB’s deposits – meaning clients withdrew their funds – as the company’s investments became riskier. According to financial news outlet Investopedia, the company saw its most growth from 2019 to 2022, which resulted in the bank having a large sum of deposits and assets.
“While a small amount of those deposits was held in cash, most of the excess was used to buy Treasury bonds and other long-term debts. These assets tend to have relatively low returns but also relatively low risk,” Investopedia claimed. Therefore, as interest rates increased, bonds became “riskier investments” – which led to a bank-wide run. This forced SVB to sell some of its investments, which came at a loss of $1.8 billion.
By 9th March, customers of the bank had withdrawn $42 billion, and the next day the California Department of Financial Protection and Innovation (DFPI) announced a takeover. A bridge bank was then set up to operate until a buyer was found, dubbed Silicon Valley Bridge Bank. To protect those client deposits, whether big or small, the US government announced an emergency response on 12th March. By 17th March, SVB’s parent company, SVB Financial Group, filed for bankruptcy, and on 27th March, First Citizens BancShares (a subsidiary of First Citizens Bank & Trust Company) acquired all customer deposits and loans from the bridge bank.
On 13th March, according to a statement from The Bank of England, the SVB UK branch was officially sold to HSBC for £1.
US space industry feels the collapse
While the SVB failure will notably impact the broader tech industry – especially startups that may become hesitant to launch amid banking issues across the country – the initial collapse sparked fears across the US space sector.
Days after the collapse, Rocket Lab filed a Securities and Exchange Commission report stating it had about $38 billion – equating to 7.9% of the company’s total cash – in SVB. Further, AstraSpace said in a filing it had 15% of its cash held at SVB.
Other companies have borrowed money from the bank, such as BlackSky, Planet, Redwire, and Space Perspective, but most had already repaid those loans, SpaceNews said on 10th March. The FDIC at the time said clients with $250,000 or less held at the bank, even if uninsured, could trust their money was safe, but some space companies feared the worst.
An anonymous space entrepreneur told SpaceNews that their balance was “suddenly $450”, and there had been “no communication” from SVB. “Our primary SVB liaison, who has been very attentive in the past, is unreachable by any means. It’s appalling”, said the source. While the company held less than the FDIC limit, the entrepreneur expressed fears over when they would access their money. However, after the US government stepped in with a rescue plan using bank-funded money, it was announced that all investments, even higher than the original FDIC limit, would be protected.
The UK industry may be in the clear
But, what about the UK? The good news is that UK space companies will likely have very little impact from the collapse, if any at all. Gabriel Elefteriu, who was the former Head of Space Policy at the Policy Exchange, and now the Deputy Director at Geostrategy, told Orbital Today that he believes it will not impact the UK industry, especially amid the HSBC buyout. The HSBC takeover will save over 3,000 UK tech companies, so any space organizations that had investments in SVB UK will be protected.
“As to whether [the] SVB debacle will have a secondary, knock-on effect on the space industry, perhaps in terms of putting off tech investors in general: again, I don’t think that’s the case,” Elefteriu said. “SVB failed largely because of bad financial management practices in the context of SVB being a smaller, ‘regional’ bank (meaning slightly different rules on oversight etc). I don’t think that the failure says something truly significant about the underlying tech (including space) customer base, so I can’t see how the tech sector per se, including space, will be affected by this.”
While analysts have feared other banks in the US may follow suit and experience a 2008-like collapse, Elefteriu believes the space industry will endure. “Space is one of the tech areas that has demonstrated strong resilience and growth power even through deep crises,” he said. “It grew through the 2008 financial crisis, and overall, through Covid as well – the latest UKSA figures, as you know, show a whopping 5% growth during lockdown”.
While most of the US firms initially impacted don’t have strong ties with any UK companies, the only notable one is AstraSpace, which signed an agreement to launch satellites from the SaxaVord Spaceport in the Shetland Islands in May last year. The impact it could have on AstraSpace’s partnership is unknown, and the company is yet to respond to Orbital Today’s request for comment.
On 13th March, SpaceNews reported several companies had been relieved when the government moved to protect all deposits in the bank. UK-based Seraphim Space CEO, Mark Boggett, said the company had been “panicking all weekend”, as a third of the firm’s portfolio companies had large funds held in SVB. He said: “Now nobody is going to lose any money”.
Orbital Today has contacted Seraphim about the broader impact the collapse may have on the space industry, but the company is yet to respond.