The collapse of Silicon Valley Bank has left startups in the area without a major source of financial services.
Patrick Cooney said Silicon Valley Bank provided a lot of support for venture-backed companies and other depositors. He is the cofounder of a regional venture studio, Mark II Ventures. 'Banking at SVB was regarded as best practice by many venture capital firms and was frequently recommended to startups by VCs.
Matt Hottle is the investment manager at Alabama Futures Fund. He pointed out a number local connections to the bank.
There were several companies in AFF with deposits. There were no venture debts, lines of credit or other financial instruments. They only had deposits. Even in Birmingham and in a small portfolio, compared to venture standards, there were multiple companies with deposits.
Hottle stated that all customers were able access their deposit.
Cooney stated that few local and regional financial institutions provide the same services as SVB to venture-backed companies.
Hottle reiterated this, noting that it can be difficult for commercial bankers to serve startups.
Hottle stated that if they are in the early stages, they could change offices three times over the next five-year period.
He said that many startups used Silicon Valley Bank’s low rates on various services to leverage.
He said that a lot of people use the structure and deals of Silicon Valley Bank to get their existing banks to match them, for fear that they will lose their deposits.
Cooney stated that there are fewer institutional investment dollars available in the Southeast.
He said that the collapse of SVB, in conjunction with the current economic environment, may further discourage local investors from investing in venture assets, making it more difficult to raise capital locally.
Cooney said that venture capital funds who viewed SVB's preferred bank as the best option for startups are likely to be more open now to startups banking at other institutions. He also recommended that startups keep some money in their operating account, while keeping others in a backup.
Cooney stated that the collapse of SVB highlights the need for greater geographic distribution among funding sources and vendors within the venture sector. He added that the venture sector’s gradual expansion in nascent geopolitical areas presents a great opportunity for local financial institution to serve venture-backed businesses.
Cooney stated that a number best-in class VC funds have opened offices in Tennessee Georgia North Carolina and Florida. Birmingham is in a good position to gain from these new market entrants and startups that are funded. We need to create banking solutions for these depositors.
The issue was not just access to funds.
Hottle stated that there is a feeling among some people that the banking industry has lost a great advocate for startups.
Hottle added that many startups might not be bankable due to other reasons.
He said that many startup founders don't get much credit.