Backers of Challenger Banks Hit Hard by SVB Collapse, Raising Concerns for the Industry

On March 11th, 2023, Silicon Valley Bank (SVB) collapsed, sending shockwaves across the global financial system.

As a result, some of the UK’s leading tech firms took a hit as their backers felt the pain.

This blog post examines the impact of SVB’s collapse on the UK FinTech industry and challenger banks.

Molten Ventures and Chrysalis Investments Hit

Molten Ventures, a FTSE 250 investment company, which counts banking app Revolut and customer review website Trustpilot among its portfolio, saw its shares slump 3.8% to 303.6p following a sharp tumble on Friday when the crisis first began.

Another of Molten’s investments is money transfer group Wise, which itself sank 11.4%, as well as challenger bank Starling and buy-now-pay-later group Klarna.

Chrysalis Investments, another tech-focused investor, also dropped 2.5% amid fears of contagion spreading through the market. The firm’s portfolio includes Secret Escapes, which banked with SVB.

Columbia Threadneedle Asset Manager Affected

Asset manager Columbia Threadneedle was hit as its £1.5billion Responsible Global Equity fund held around 97,000 shares in SVB, while its larger £4.8billion F&C investment trust owned around 46,000.

Shares in the latter fell 1.8% to 917p in London.

Impact on the Financial Technology Sector

The fall of SVB has raised fresh question marks over how these businesses are funded.

Will Marwick, CEO of payments firm IFX, said SVB’s collapse and the market turmoil it unleashed would place “renewed focus” on the stability of the financial technology sector. He added that “the number of fintechs exposed to SVB highlights the need for customers to regularly investigate how diversified their operations are to different banking partners via their provider and ensure there are robust systems and risk controls in place.”

John Colley, Associate Dean of Warwick Business School, said the fall of SVB would “be a worry” for the industry and that any banks serving tech start-ups were likely to “raise concerns amongst depositors.” He added that while the UK and US governments had helped rescue SVB, they may “draw the line there,” putting other banks in niche sectors at risk. “So far, banks have escaped a run, but that may not remain the case for long,” Colley said.

Final Thoughts

The collapse of SVB highlights the interconnectedness of the global financial system and the potential for crises to spread rapidly.

While the impact on the UK FinTech industry has been significant, it remains to be seen how far the repercussions of SVB’s collapse will reach.

In the meantime, investors and businesses are likely to be more cautious about their banking partners, with a renewed focus on diversification and risk management.