The startup community was rocked when banking authorities in the United States closed the Silicon Valley Bank (SVP) Financial Group.
Silicon Valley Bank failed because investors lost their appetite for risk after the US Federal Reserve decided to raise interest rates. Because of this, investors began taking their money out of SVP in order to satisfy their immediate cash needs.
Numerous startups’ ability to grow and succeed has been severely hampered as a result of the collapse.
What causes Silicon Valley to succumb?
There was a chain of unfortunate occurrences that led to the downfall of Silicon Valley Bank (SVB) Financial Group. Some SVB customers are experiencing a cash flow problem as a result of the US Federal Reserve increasing interest rates.
As a result, SVB announced a stock sale and liquidated its bond portfolio at a loss. SVB, however, went into receivership after the stock sale failed.
Investment decisions ultimately led to SVB’s demise. Most of SVB’s available securities were US Treasury notes, and selling them resulted in a loss.
Impact On Indian Startups
Indian start-ups may find it more challenging to manage their finances and gain access to capital without the help of SVB.
The SVB collapse emphasizes the value of financial stability and the need for effective risk management in the financial industry. The significance of ensuring that new businesses have access to secure and dependable financial services essential to their development and expansion is also highlighted.
Especially in the financial sector, the importance of careful investment planning and risk management has been underscored by SVB’s demise. It also stresses the importance of policymakers thinking through how their choices will affect the economy and the financial system.
When interest rates were low in 2020 and 2021, when the tech industry was booming, SVB invested its depositors’ money in long-term Treasury bonds.
But as interest rates began to rise, the market value of these Treasuries plummeted, causing depositors to demand withdrawals. This liquidity crisis resulted in SVB being unable to meet its financial obligations.
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