The collapse of the prestigious tech-focused Silicon Valley Bank has no doubt dealt a huge blow to tech startups across the globe, as several African startup founders are reportedly reviewing their banking options.
SVB has been a strong partner with startup firms like incubator Y combinator, which holds accounts from Africa and across the world. Following the shocking collapse of the bank, some 30% of Y combinator startups with SVB exposure are reportedly unable to make payroll.
An African founder disclosed that all the startup founders’ groups that he is in are in full-on panic mode, as everyone is reportedly moving money around. “Nobody knows which banks are safe,” he said. Several other African startups are affected with different degrees of impact, which includes Chipper Cash, African payments giant which had about $1 million at SVB when it collapsed, and Artifact, a Moroccan-owned business that has all its funds stuck at Silicon Valley Bank.
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In a bid to cushion the effect of the collapse of SVB on African startups, some founders have begun to make certain changes as regards their company’s banking options. In an interview with TechCrunch, Nala, a U.K based African startup focused on mobile money transfer that managed to pull out its fund from SVB before it collapsed, disclosed that the company is exploring partnerships with new large corporate banks.
CEO of Nala Benjamin Fernandez said, “we have gotten inbound outreach by several banks, but you know banks always like to know a lot of information about companies, their revenue, the amount of cash the company would hold with them, and so on to bring them on board.”
Also, the Pan-African fund Future Africa, which suffered minimal exposure has disclosed its plans to open an account with a global banking institution. Jumba, a Kenyan construction firm that simplifies B2B purchase of construction materials is also looking to diversify its deposit holdings, as the startup founder Kagure Wamunyu revealed that he is opening additional accounts with a bigger bank in the U.S.
However, he believed that the impact on Africa’s tech sector may be limited given the small number who bank with SVB. The difficulty that African startups face in opening US bank accounts may have protected the continent from the worst of the fallout, he said.
But if ripple effects are not yet fully apparent, observers believe that the long-term implications could be more significant. Some experts see SVB’s collapse as an opportunity to strengthen Africa’s startup ecosystem and encourage greater investment from local sources. Several African Founders disclose that the event has reinforced the need to build homegrown solutions. They revealed that when African startups rely on foreign investors, they expose themselves to imported problems.
It is however interesting to know that before now, there have been calls for African venture capitalists to be more involved in the backing of local solutions. These calls have not been heeded to, as persistence of the west’s savior mentality remains a thorn in Africa’s flesh.
As the tech industry grapples with the aftermath of SVB’s collapse, it is clear that the lessons learned from this event will have far-reaching implications for startups and investors across the continent.