Tech start-ups tend to involve taking big risks on ideas which are untested both in terms of technology and the market place. Yet it isn’t blind faith in new ideas that is threatening to bring down scores of British tech start-ups over the next few days: it is boring old bonds. Many start-ups have relied for financing on Silicon Valley Bank UK, an offshoot of its larger US parent. Over the last few years, the institution has in turn relied on taking bets on government bonds whose value had been inflated by near-zero interest rates. As interest rates have risen, those bets have gone sour. On Friday, the Bank of England announced that the bank is to enter insolvency.
The Bank of England tried to reassure investors by stating that Silicon Valley Bank UK ‘has a limited presence in the UK and no critical functions supporting the financial system’. Yet that somewhat understates the scale of crisis faced by the tech sector and by the government – and by the wider economy.
Is the Silicon Valley Bank a canary in the coal mine
Tech has already had a wretched year as the era of zero interest rates has come to an abrupt end.
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