Enterprise Technology Startups With High Product Development Cost Vulnerable To Silicon Valley Bank Collapse: Report

  • Wall Street specialists expect the unexpected collapse of SVB Financial Group SIVB owned Silicon Valley Bank last Friday to pose a short-term bummer on the enterprise-technology market, subjecting emerging software startups to new fundraising challenges and higher-priced loans, the Wall Street Journal reports.
  • Cloudflare, Inc NET co-founder and CEO Matthew Prince highlighted the gravity of Silicon Valley's ecosystem that could amount to a loss for the country and the world on Tuesday at WSJ's CIO Network Summit in Palo Alto, Calif. Prince acknowledged Silicon Valley Bank as their first bank when they were a startup 14 years ago and had been very helpful throughout that.
  • Silicon Valley Bank reopened its doors this week under government control after federal regulators enacted emergency measures to protect billions of dollars of deposits.
  • Also Read: SVB Collapse Could Materially Impact Coinbase's Revenue, Profitability Considering USDC's Criticality To Coinbase, Analyst Says
  • "Fundraising, which had already become far tougher, is only going to get tougher still, especially for enterprise startups," the report quoted Maëlle Gavet, CEO of startup accelerator Techstars, citing the high cost of product development. 
  • Techstars, which has incubated scores of enterprise tech startups over the years, has received financial support from SVB Financial Group.
  • SVB is also known for providing tech startups with low-rate loans and lines of credit pegged to their equity funding, known as venture debt. If those rates were to go up under the bank's new management would hit startups across the market, especially enterprise startups, which have a high cost of product development, the report further noted, citing analysts and investors.
  • "I think the cost of capital is going to be higher," Vineet Jain, co-founder, and chief executive of enterprise firm Egnyte Inc, said at Tuesday's conference.
  • Jonathan Lehr, co-founder and general partner at VC firm Work-Bench, said he hopes someone will step up to ensure that startups can access debt capital "since that plays an important role in startup scaling."
  • Outside the tech sector, CIOs and other corporate tech leaders at companies that rely on AI-powered business apps, automation, and other advanced capabilities remain concerned over SVB's future, said Tim Herbert, chief research officer at IT trade group CompTIA.
  • Price Action: NET shares traded lower by 1.02% at $54.25 on the last check Wednesday.
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