Romania’s startup ecosystem sees limited impact from SVB failure

The sudden decline of Silicon Valley Bank has startled the US startup industry and banking system, as many feared it would generate an international banking crisis. But within less than one month, most of the lender’s assets were acquired by North Carolina-based lender First Citizens BancShares. For startups in Romania, the impact of these events will be rather limited, as the main funding players in the country are venture capital firms compensating for banks’ lack of interest in early-stage firms. However, the outlook would darken dramatically if a banking crisis were to emerge in Europe.

By Ovidiu Posirca

SVB was not a system-critical bank, but it had a strategic role for the innovation sector. Overnight, hundreds of thousands of jobs in the technology sector and deposits from over 1,000 venture funds were suddenly at stake, Venionaire Capital CEO Berthold Baurek-Karlic wrote in a commentary for Wiener Zeitung.

SVB’s success among entrepreneurs stemmed from its support for pre-revenue companies with funding tools that were designed specifically for startups. Its downfall started on March 8, when it announced a loss of USD 1.8 billion as it sold some investments to cover increasing withdrawals from customers. It was looking to raise another USD 2.25 billion from stock sales, but on the following day depositors tried to withdraw a total of USD 42 billion from SVB. In the coming days, tech startups started looking for alternative funding sources as their deposits were locked up in the struggling bank. The US government stepped in to protect the deposits, and by the end of the month First Citizens BancShares bought the failed bank. As a result of the deal, First Citizens' total assets reached USD 219 billion. “The SVB collapse was paradoxically not related to high-risk tech startup investments or lending, but to them placing money in arguably the lowest-risk asset, namely US treasury bonds. Everybody now knows how the story unfolded; there’s been no loss for the IT startups using SVB for either deposits or other type of banking activities, so in theory, there’s no harm done. However, we expect that there will be an effect among investors in terms of the credibility of the Silicon Valley ecosystem at large—a negative effect, for sure,” Marius Ghenea, managing partner of Catalyst Romania, tells BR.

Banks And Startups Still On Parallel Tracks

Ghenea suggests that the spillover risks for EU investment markets are limited because EU investors continue to get large public allocations of funds from financial institutions having Europe-wide or smaller regional or ered too risky by traditional lenders such as banks. Additionally, most banks in Romania are retail-focused, specialising in granting consumption loans and real estate mortgages,” Munteanu explained.

Historically, SVB had been filling a gap in the startup ecosystem that few other banks would attempt to fill.

“European banks are risk averse and much more hesitant when it comes to underdogs and the underestimated founders who defy the odds.

“It was so fulfilling to help a founder with their pitch, business model, GTM strategy or make successful investor intros leading to capital raises,” Ren wrote.

In Europe, the most visible effect from SVB’s downfall was seen in Switzerland, where UBS decided to purchase Credit Suisse for more than USD 3 billion. The deal designed by Swiss regulators was aimed at preventing a crisis of the banking system. Elsewhere, banks and regulatory bodies have rushed to assure people that their money was safe inside the banking system.

European Startup Funding Down In 2022

national deployment scopes. By comparison, the US ecosystem overwhelmingly relies on private investors, and within the EU these funds need to continue investing in companies in order to meaningfully use those funds.

“In my opinion, the effect on relevant local or CEE early-stage investment markets will be limited, unless something similar happens with European banks,” Ghenea adds.

Cristian Munteanu, founder and managing partner at Early Game Ventures, said in an interview for BR that the SVB crisis did not escalate thanks to swift state intervention. He added that the situation is very different in Romania because there are no institutional startup lenders on the local market.

“Startups are young, largely still unproven companies, with almost no assets that can act as collateral. Such companies are consid- lending to startups, specifically technology companies,” Baurek-Karlic wrote.

Around 75 percent of European companies that got funding from SVB in the past five years have benefitted from its venture debt financing.

“It will certainly impact the EU IT sector when one of the major investment players is no longer in the game,” said Frederik Schouboe, co-CEO and cofounder of Keepit, according to innovationorigins.com.

After the bank’s closure, Bo Ren, a former director of early-stage startups at SVB, wrote on LinkedIn that she loved working with the

Last year’s slowdown in startup funding across Europe was due to higher financing costs, the ongoing war in Ukraine, and the restructuring of large US-based tech companies. Data from Crunchbase shows that venture and growth investors injected USD 90 billion in European startups in 2022, down 25 percent compared to 2021, which was a record year for the industry. Nonetheless, the total funding volumes from last year were almost double compared to those in 2020, when the pandemic was all over the news. Meanwhile, the North American and Asian startup funding markets were down 36 percent and 39 percent respectively year-on-year in 2022. “There’s a realistic chance that [the slowdown] might not really trigger fully in Europe until Q1 [2023],” said Hussein Kanji from Hoxton Ventures, noting that Europe “fluctuates more with the markets. When times are good it goes up higher than expected, and I suspect when times are low it will go lower than expected.”