>Although there are almost 5,000 banks in North America, only a handful focus on startups, despite the importance of software, biotech and clean technology to the future of our economy, health and environment. While traditional commercial banks will only lend against “hard assets” or your personal guarantee, people such as me or SVB’s team have spent decades building the expertise to provide debt capital based on the value of your “enterprise,” taking into account your company’s IP, revenue or both.
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>When these startups approach a lender, they’re rarely profitable. That lack of profitability often scares both bankers and regulators. And yet, as SVB and other lending teams have proven across multiple economic cycles, loan losses in this sector are no higher than those in the broader economy – provided you have the right expertise.
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>SVB recognized this market gap and became the 16th-largest U.S. bank. As memories of the last dot-com bubble waned, SVB’s success spawned a few smaller competing banks. If you were an entrepreneur, you welcomed the new competition and the lower cost of capital that resulted.
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>But no competitor can do in five years what took SVB decades to accomplish with its 6,000-person team. Over a 40-year period, SVB built a US$30-billion loan portfolio, and about half of that capital is already at work in the economy. SVB has also deployed another US$40-billion in support of venture capital, infrastructure and private equity funds for their day-to-day business needs. That capital and know-how helps create thousands of new, high-paying North American jobs each month. All of which came to a screeching halt last Friday.
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>With the loss of such a large debt partner, many VC funds will need to reserve more of their own capital to fund each and every new startup. Which means these same VCs will have no choice but to back fewer new firms. And fewer new startups means there’s a irrefutable risk that the “next Moderna” won’t get that first round of essential funding. The consequences of this single bank failure are difficult to overstate.

This kind of concentration of capacity within one organization and market dominance is a problem not just with finance but with any other critical pieces of business infrastructure. They become critical points of failure when things go wrong, and as we're seeing now there can be significant widespread damage to the ecosystem because of it. There ideally should be a degree of redundancy built into all of these systems, so that in the event of a failure there can be sufficient capacity to keep things going during the rebuilding phase.