The anxiety of Nigerian tech startups has been exacerbated by the failure of Silicon Valley Bank, as US Treasury Secretary Janet Yellen stated yesterday that the Federal Government would not bail out the bank.
While US financial behemoth HSBC has acquired SVB UK, the crash will be devastating to Nigerian tech firms, which are among the most important players in Africa’s tech start-up ecosystem.
Although experts believe the impact on Africa’s most populous country’s project capital initiative will be minor. It is unclear, however, how the collapse will affect the thriving local startup sector.
Fintech startups in Nigeria received a total funding value of $507 million between January and August 2022, a significant increase from amounts received from 2015 to 2020.
According to reports, there will be over 140 fintech startups in the country by 2021.
Adedeji Olowe, founder, and CEO of Lendsqr, a fintech company, was previously quoted as saying that while some startups may have funds trapped in the bank, the funds have not vanished.
In the same vein, the co-founder of Carbon, a digital bank, Ngozi Dozie, was also quoted to have said, “VCs make investments and call capital from investors – this money is used to repay SVB loans. As a result, funds for investment are not in SVB. However, funds for VCs to operate, pay salaries, and management will be held in SVB.”
In an interview with CBS’ “Face the Nation,” Yellen gave few details about the government’s next steps. She did, however, emphasize that the situation was vastly different from the financial crisis that occurred nearly 15 years ago, which resulted in bank bailouts to protect the industry.
We’re not going to do that again,” she said. “But we are concerned about depositors, and we’re focused on trying to meet their needs.
With Wall Street rattled, Yellen tried to reassure Americans that there will be no domino effect after the collapse of Silicon Valley Bank. “The American banking system is really safe and well-capitalized,” she said.
It’s resilient.” Silicon Valley Bank, based in Santa Clara, California, is the nation’s 16th largest bank. “It was the second biggest bank failure in US history after the collapse of Washington Mutual in 2008. The bank served mostly technology workers and venture capital-backed companies, including some of the industry’s best-known brands.
Silicon Valley Bank began its slide into insolvency when its clients, mainly technology companies that needed cash as they struggled to get financing, started withdrawing their deposits. The bank had to sell bonds at a loss to cover the withdrawals, leading to the largest failure of a US financial institution since the height of the financial crisis.
Yellen described rising interest rates, which have been improved by the Federal Reserve to combat inflation, as the core problem for Silicon Valley Bank. Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.
