As many startups breathe a collective sigh of relief that their Silicon Valley Bank (or other bank) deposits are being made whole, it’s important to consider the ongoing impacts of the banking failure on your company. The uncertainty and the fear may be subsiding, but you can’t simply continue on as you used to.
Here are three impacts to think about — and act on — right now:
1. Valuations, in general, are going to go down.
Valuations were already going down. From 2001–2022, they were decreasing because of the macro environment and inflation, and there were fewer deals being done. In fact, according to The Wall Street Journal, global venture funding dropped 35% year over year in 2022.
So the trend was already there, and now with what happened to SVB — plus knowing things could potentially still happen with other banks — the values will continue to go down. There’s just less capital available for investing (see below), both debt and equity. Other types of financing, such as loans and venture debt, are also going to be a lot less accessible. Financers will be looking for a lot more due diligence and certainty around the health of your company before they’re willing to give you money. All that will lead to a drop in valuations. The stock market has gone down already, which is just a public decrease in valuation. It’s also another indicator that private company valuations will follow.
2. There will be more pressure to increase your runway.
You’ll need to increase how long your cap will last. That can be broken down into several things, including the need to rethink your strategy in terms of how to make it through without savings, and without becoming bankrupt, so you can last a bit longer and then raise capital when the time is right. Now it’s time for survival mode. And it is likely time to reduce expenses, including staff. That’s not good news, especially for companies that were staffed up to get ready for an increase in valuation or their next round of financing. But if you’re spending less, you can last longer.
3. There will be less capital available.
Companies may want to delay fundraising altogether. There’s less capital available, and people are not going to be willing to invest. The SVB situation has really shaken investors and banks and VCs and even startups, themselves — the whole ecosystem. Investors are going to be much more conservative, and there’s going to be a lot less capital available. At this point, people are de-risking rather than increasing risk.
Avoid crippling missteps or delays in deciding what to do next. If you need help determining your next steps, please reach out to me. I’m happy to help.