Â
BY NATALIE BROPHY
March 30, 2023
Have Upstate New York startups been impacted by Silicon Valley Bank collapse?
The collapse of Silicon Valley Bank left startup and technology companies scrambling to access their money, sending waves of uncertainty across the country.Â
The majority of Silicon Valley Bank's customers were in the fast-growing technology and startup sectors. As interest rates rose and funding for startups began to dry up, the bank's customers started withdrawing funds the bank did not have. In an attempt to fund the redemptions, the bank began selling its assets at a huge loss.
People are also reading…
The federal government then stepped in, closing down the bank and pledging to pay back depositors in full, beyond the standard $250,000 insured by the Federal Deposit Insurance Corporation.
The collapse of Silicon Valley Bank, the nation's 16th largest bank, was the biggest banking failure since the 2008 financial crisis.Â
While there weren't many companies in Upstate New York scrambling to access their money after the bank's collapse, founders and investors here are not immune to the ripple effects that the bank's collapse could have on fundraising going forward on a macro level, experts say.Â
"There had already been, generally, a tightening of venture capital funds across the country," said Richard Honen, an attorney with Phillips Lytle who specializes in venture capital and startup law. "This doesn't help."
Upstate New York companies not seeing major impactÂ
None of the companies Honen has worked with were "directly affected where they had a line of credit that is no longer available," he said.Â
Nasir Ali, CEO and co-founder of Upstate Venture Connect, said he is aware of some Upstate New York companies that had funds with Silicon Valley Bank, but they were able to recoup their money after the government stepped in. He said he could not disclose the names of those companies.Â
Silicon Valley Bank was one of the only traditional bank entities that would loan money to startups, Honen said.Â
That has not been a common investment practice in Upstate New York, Honen said. Companies locally have sought more traditional types of financing, such as convertible notes and equity-based funding mechanisms that give investors the right to acquire an equity stake in the company in the future at a fixed price.
"Upstate New York is not the startup environment that you see in Silicon Valley," he said. "But the good side of that is we can stay under the waves a little bit.
"As there are cutting edge ways of funding companies, and some of those don't work out very well, we don't get hit as much by that. We tend to be version two or three of whatever the new funding craze is, and by then, some of the kinks have been worked out."
The communities most impacted by the Silicon Valley Bank fallout are places such as Silicon Valley and New York City, where many companies banked at the institution, Ali said.Â
"Companies in Upstate New York are relatively less affected because these are, generally speaking, smaller rounds of funding, and they're happening mostly with more reliable banks, locally," Ali said.Â
Startups need to protect their moneyÂ
At Upstate Venture Connect, a nonprofit that supports high-growth companies, Ali and his team are not changing the criteria by which they judge great companies.Â
"We're looking for great companies, and these are the times when great companies show you they're great," Ali said.
"This may be the best time for people who are looking to deploy capital," he added. "We're not changing our perspective in terms of what makes an investment attractive. The opportunity is still built around 'How great is this company and do we want to back this team?' not so much where they decide to put their cash."
But, now is a good opportunity for local companies to make sure they are protecting their money, Honen and Ali said.Â
"Most (venture capitalists) and the teams they funded prior to Silicon Valley Bank never really gave much thought to cash management because they felt like the bank is where you put the money, and then you're going to burn the money because you're in a negative cash flow situation until your next fundraise," Ali said.Â
"What this pointed out is that raising $5 or $10 million, or even $1 million, and not figuring out how to put it in the bank in a way that you are protected is foolishness," he added.Â
– Natalie BrophyÂ
Want to know more? Two stories to catch you up:
Welcome to Buffalo Next. This newsletter from The Buffalo News will bring you the latest coverage on the changing Buffalo Niagara economy – from real estate to health care to startups. Read more at BuffaloNext.com.
THE LATEST
A local workforce development program is getting a $1 million grant.
A German company plans to move into a vacant factory in Falconer.
A federal appeals court judge lifted the injunction barring legal cannabis retail licenses from being issued in Western New York. What's next?
Buffalo Niagara was front and center as Senators grilled former Starbucks CEO Howard Schultz on its union stance.
The Salvation Army's Buffalo expansion project is expanding.
The new owners of the Lenhart Hotel on Chautauqua Lake have big plans for the historic inn.
The Buffalo Niagara region's unemployment rate took an unusual turn during February.
Buffalo Niagara tax filers could get an extension until May 15, but you'll have to work for it.
Gov. Kathy Hochul was invited to the Buffalo Pride parade - until she wasn't.
A Clayton Street apartment project got the green light.
Developer Douglas Jemal's controversial Elmwood-Bidwell project is moving forward.
Cummins Engine in Jamestown is getting a big investment.
ICYMI
Five reads from Buffalo Next:
1. Dr. Steven Lipshultz arrived in Buffalo in 2018 with a reputation as a renowned pediatric cardiologist and a prolific researcher. His tenure here ended in March amid two lawsuits. And another top University at Buffalo gene researcher says he was forced out by his now-former boss.
2. For the founders of Mod Tech Labs, winning the 43North competition means starting over in a new city as they continue trying to build their business.
3. For Ted's Hot Dogs, finding a quality bun that can handle its signature footlong hot dogs has been a struggle. Now, its owner hopes it has found a lasting solution.
4. When the Buffalo Bills started working with Legends, the sports marketing and consulting firm co-founded by Dallas Cowboys owner Jerry Jones, it was just on a limited scale. Now, Legends is playing a key role in important parts of the new Buffalo Bills stadium project.
5. The tech industry is being battered by thousands of layoffs across the country, yet in Buffalo Niagara, hundreds of job openings in the sector are unfilled because qualified workers are hard to find. Could those job losses elsewhere be a hiring opportunity for local tech firms?
The Buffalo Next team gives you the big picture on the region’s economic revitalization. Email tips to buffalonext@buffnews.com or reach Buffalo Next Editor David Robinson at 716-849-4435.
Was this email forwarded to you? Sign up to get the latest in your inbox five days a week.