View Original Article

On being a bank at SXSW the week that SVB collapsed

March 20, 2023 6:00 AM
Maureen McCall

The South by South West (SXSW) conference and festival in Austin TX has been known for decades for being the locus for the convergence of cutting edge film music education and culture.

The many diverse concerts and  festival events of the SXSW have garnered a lot of attention in mainstream media over the years. However,  it is the conference portion, featuring presentations that focus on the most important breakthroughs in technology, film, and culture that are the most fascinating. This year they include energy events with opportunities for networking, learning, brainstorming, and career-enhancing connections.

In an inspired move, Alberta Innovates gathered its 50 high-potential Alberta ventures to travel to Austin TX to accelerate their growth by connecting investors, customers, and strategic partners. All the companies were graduates of Alberta Innovates’ Scale-up and Growth Accelerator Program and represent the province’s strength in agri-food, sustainability, health, and digital technologies sectors according to a press release out at the end of February.

The intention was to help Alberta entrepreneurs develop interest in expanding in the U.S. market and bring investment back to the province. This year’s conference was billed as North America’s premier gathering for world’s next wave of tech innovation.

Laura Kilcrease, CEO of Alberta Innovates described the intended participation in SXSW as:

“During their six days in Austin, the companies will attend curated one-on-one meetings, participate in invitation-only networking events with potential U.S. investors, customers and partners, and take in workshops and events at SXSW. Building global business networks will help these Alberta companies scale up much faster.”

Prior to her appointment as CEO, Laura Kilcrease was a driving force in Austin’s technology and innovation community and founded the Austin Technology Incubator as well as co-founded the Austin Technology Council.

The BOE report caught up with one participant, Cody Austin, co-founder of Digital Carbon Bank– a Calgary-based sustainability technology company. Digital Carbon Bank promotes itself as the world’s first joint venture-enabled emissions management platform and actually offered to donate carbon credits to make the SXSW delegation carbon neutral.

It must have been weighty to be a Canadian start-up- a Digital Carbon Bank networking with investors, customers and partners during the initial days of fallout from the Sillicon Valley Bank (SVB) collapse.

Yahoo finance reported last week that some of the founder and CEOs of tech start-ups at the SXSW conference were working to determine what their exposure might be to the SVB event. Signal & Cipher CEO Ian Beacraft indicated in the Yahoo report that: “In the start-up ecosystem, it (the SVB collapse) is already having an impact. Within weeks we will start to see shops floating up and within months we will start to see the ripple effect across the rest of the economy.”

Patrick Quade, founder and CEO of Dinesafe.org commented in the same report that: “If there’s not some additional help, some businesses seem extremely likely to fail- entrepreneurs and start-up companies. It seems clear that will happen unless the recovery is fast and significant. There’s so much uncertainty at present.”

In this atmosphere of uncertainty, many who attended the conference still participated whole-heartedly and undaunted in the meetings with project developers and investors, and in the case of Digital Carbon Bank- meetings with offset buyers as well.

Cody Austin, co-founder of Digital Carbon Bank described the atmosphere among the energy tech startups as the story of SVB’s demise developed.

“Within the big SXSW conference, the real business happens at the sponsored private presentations and Alberta Innovates put on a showcase for the top 50 Alberta companies on Wednesday, March 8,” Austin said. “There was even a representative from Silicon Valley Bank that was talking to people at that showcase.”

That same day SVB suddenly announced that it needed to raise $2.2 billion.

“So we were meeting with investors and all these people that are curated to come in to meet with the top Canadian companies before the announcement,” Austin said.

“It was really strange because with this great event, you’re meeting investors. Everything was very promising and by Friday the news of the SVB closure by the FDIC was shocking. Thankfully, we didn’t have deposits there. But I know that some of the non-Alberta Innovates people that we spoke to had deposits at SVB and they were freaking out because no one knew what was going to happen next.”

By March 10, the Federal Deposit Insurance Corporation announced it had closed the bank. The atmosphere over the weekend was tense as attendees waited for Monday to find out what measures might be taken by regulators.

“Even seasoned venture capital investors were not immune to the anxiety that pervaded the atmosphere,” Austin observed. “We spoke with one individual who had the reassurance that one of her funds would remain intact, but the fate of her other fund with SVB hung in the balance. Another startup we encountered had just completed a $5 million funding round, with a provision to deposit the funds in Silicon Valley Bank. Unfortunately, the bank’s announcement cast a cloud of uncertainty over their future. Would they be able to meet their contractual obligations and make payroll? Would they ever gain access to the funds they had spent soo much time and effort on raising? I can’t even imagine what they were going through in that moment.”

There is no doubt that the impact of SVB’s collapse on the tech sector is huge. For VCs and tech, overall counterparty risk is a concern – there is a lot of risks and just a few big banks in Silicon Valley. Certainly, some of the tension related to the SVB collapse has been eased by the actions of the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) to ensure SVB depositors would have access to all of their money effective March 13 .

As stated in their press release “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” yet risk concerns still persist. The question lingers, are the capital markets now closing up for start-ups that had such easy access to money for the last 10 years?

It is significant that Bloomberg Technology reported last week that a new era for tech has arrived.  In the Bloomberg interview, Steve McLaughlin CEO/Founder of FT Partners stated: “You see some of the big guys (U.S. companies) that wrote all the cheques leading up to the big boom in tech and fintech really pulling back on their private investments and looking at their portfolio companies or shifting to public markets.”

Bloomberg analysts identified a main concern that SVB didn’t just hold deposits for the sector- it also offered a wide range of banking services when no other banks would. They posed the question – where do founders go when they need the banking services that traditional banks won’t offer them?

“The economy in the Fintech universe is extremely strong. I think there are going to be places for people to go,” McLaughlin said. “I also think there is a huge place for the FinTech institutions that are coming onto the scene, solving some of these problems and using some of the very largest banks. So they have to layer on top of the largest banks so you can have the best of both worlds.”

This optimism is echoed by Digital Carbon Bank’s Cody Austin who says that the nervous atmosphere he encountered at SXSW was ultimately resolved.

“At prominent events like the SXSW Capital Factory House, where investors and startups converge, the atmosphere was electric with nervous energy. Yet, despite the uncertainty, everyone we spoke to was fully committed to building businesses and making deals. This was before Monday’s resolution and Biden’s announcement to protect deposits. The startup community’s resilience and unwavering optimism in the face of challenges is truly inspiring. They have mastered the art of adapting successfully to unforeseen obstacles, which is a testament to their fortitude and determination to build global businesses.”

Maureen McCall is an energy professional who writes on issues affecting the energy industry.

Sign up for the BOE Report Daily Digest E-mail Return to Home