Silicon Valley Bank’s crash provides valuable lessons around the world
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welcome to The exchange! If you received this in your inbox, thank you for signing up and your declaration of confidence. If you are reading this as a post on our site, please register here so that you can receive it directly in the future. Mary Ann is on a much-deserved break this week, so I’m filling in for her, bringing you the hottest fintech news from last week. Now let’s dive into the fintech news because you’re probably wondering what’s going on with your favorite bank, and I promise I’ll get to that first. Let’s go! — Christine
We’ve learned a lot more about the Silicon Valley Bank collapse since you last read this newsletter (lots and lots).
The latest was that SVB Financial filed for Chapter 11. And First Republic Bank, which was caught up in all this mess earlier this week, found some saviors in the way of some of the country’s largest banks that reportedly came together to strengthen the bank by approx. 30 billion dollars in bailout funds.
This week some of my colleagues took a deep dive into the effect on consumers, businesses, banks, investors and so on – all over the world – who had made deposits with SVB. If anything, it shows how connected the startup ecosystem really is.
Annie Njanja and Tage Kene-Okafor got the scoop on African companies affected by the SVB collapse. For example, they talked to Nala, a mobile money transfer startup, which managed to pull its money out of SVB before it collapsed. In contrast, Chipper Cash was among several startups that did not have access to a portion of their money at the time.
They noted how prolific SVB was in the startup ecosystem when it came to companies opening SVB bank accounts, especially those that were part of a US accelerator program, and even explained how difficult this process was when potential account holders did not have a social security number or established US address. They also wrote that these types of events, along with existing high-risk banking options, “have reinforced the need to build home-grown solutions” in Africa.
“If you want US-based banking, which creates credibility (still) with investors, those are your options,” said Stephen Deng, co-founder and general partner at Africa-focused early-stage VC firm DFS Lab. “I think what is changing is that entrepreneurs need to know how to manage counterparty risk. Sweep networks and treasury management are all in focus.”
Meanwhile, Brian Heater reached out to founders and investors in the robotics sector, typically a capital-intensive industry, about what the fallout could mean for them in terms of accessing future capital and continuing to diversify funding sources.
An interesting comment came from Peter Barrett at Playground Global, who said: “If SVB rises from the ashes – and we act to curb the weaponization of concentrated digital media – money may not become prohibitively expensive for capital-intensive technologies like robotics. On the other hand, now that we have motor memory for banking, things can get messy. How would an adversary best attack innovation in robotics? We saw how devastating a handful of influential tweets and emails could be to unwind a valued and respected 40-year-old institution. Why bother with a cyberattack when a few well-placed capitalized words from seemingly reputable sources can hurt thousands of our most innovative companies?”
Actual. As you can imagine, this all continues to develop, so stay tuned for more.
As we move forward, we are constantly told to diversify our holdings in the financial world — have money in a number of different mutual funds or have money in checking and other money in savings. Over at TechCrunch+, all this SVB business got Natasha Mascaren thinking about how to do this.
She spoke to some founders and investors about the concept of “single points of failure.” Specifically, where else can a business diversify—for example, foundation teams and succession plans—to ensure it doesn’t have its eggs in one basket.
Before I get into more news, I would like to mention that while people have pulled money out of SVB, there are still some who support the bank. For example, Brex announced that it was depositing $200 million of its money into SVB – pulling it from other major banks to do so. CNN also reported on others.
Some companies that provide banking services to startups stepped up after the Silicon Valley Bank collapse to offer their services and help companies maintain cash flow. Mary Ann reported on a few companies, which Rhowhich saw an increase in new customers, incl Mercury, which moved quickly over the weekend to launch a new product called the Mercury Vault. This product “offers customers extended FDIC insurance up to $3 million via a new product in the wake of Silicon Valley Bank’s collapse. That’s 12 times the institutional industry standard of $250,000 in FDIC insurance offered by other institutions.” Then on Friday, the company increased it, announcement on Twitter that “by Monday, Mercury customers will have access to up to $5 million in FDIC insurance – 20 times per bank limit.”
Stripe was quite active this week. I updated an earlier story Mary Ann worked on about Stripe going after additional funding. At the time, it was expected to bring in around $2 billion, but instead Stripe ended up with $6.5 billion, but at a reduced valuation of $50 billion. The Series I proceeds will go to “provide liquidity to current and former employees and address employee withholding tax obligations related to equity awards, resulting in the retirement of Stripe shares that will offset the issuance of new shares to Series I investors.” Stripe was also chosen to work with OpenAI to monetize ChatGPT and DALL-E.
Reports Manish Singh: “TelephonePe has raised another $200 million as part of an ongoing round, a move that has now helped it pull in $650 million in recent weeks despite the market slump as the Indian fintech giant bulks up its war chest following its recent separation from parent company Flipkart. Walmart, which owns the majority of PhonePe, has invested $200 million in the startup. The ongoing round values the Bengaluru-headquartered company at $12 billion pre-money. The startup has said it plans to raise up to $1 billion as part of its ongoing round.
Reports Natasha Mascarenhas: “Founders are still shaking off the dust a week after Silicon Valley Bank’s collapse. Rumors are swirling about who might want to buy the beleaguered bank’s assets. Some of the best firms urged their portfolio managers to diversify their assets when the bank collapsed and continue to do so, even as regulators have stepped in to guarantee that all depositors will have access to their stashed cash. Although asset diversification feels obvious in hindsight, following that piece of advice is harder than it seems.”
In accordance Aim‘s Q1 2023 Digital Trust & Safety Index, buy now, pay later (BNPL) companies saw payment fraud increase by a whopping 211% in 2022 compared to 2021. The report looked at over 34,000 websites and apps and highlighted some specific scams as fraudsters is using to steal from BPNL companies and sellers. For example, Telegram is a platform where Sift said “rapid proliferation of fraudsters advertise the services they can offer with stolen information,” including fake credit cards and the sale of compromised email credentials. In one scheme, Sift observed a fraudster posting “unlimited access” to an account with three of the top BNPL providers for just $35.
Adyen, which offers end-to-end payment capabilities, said it further developed its digital authentication solution, combining security and seamless payment experiences for its customers. In testing, Adyen was able to authenticate the consumer on behalf of the issuer, while remaining on the buy side, helping merchants get up to a 7% increase in conversions.
Financing and M&A
Wingspan raises $14 million for its all-in-one payroll platform for contractors
Here’s a New Corporate Card Startup, Backed by $157M in Equity, Debt, Going After Brex, Ramp
Metaverse payment platform Tilia receives strategic investment from JP Morgan
Indonesia’s Broom is rolling out automated asset-backed lending for used car dealers
Nigerian credit-led fintech FairMoney acquires PayForce in retail and merchant banking play
And other places
Masttro secures $43 million in growth investment led by FTV Capital
Cover Genius, a built-in protection insurtech, acquires Clyde
Greek fintech Natech raises €10 million in convertible bonds to expand
Payment infrastructure startup Payabli closes $12M
Apexx Global, a payments orchestration startup, raised $25 million
Chile-based payments company Toku raises $7.15 million
That was it for now. I hope you enjoyed my takeover of Mary Ann’s column. Don’t worry, she’ll be back for the March 26 edition! Have a great week, Christine