This special edition of Supply Chain Matters This Week in Supply Chain Tech provides an initial perspective as to what the SVB collapse implies for supply chain tech in the weeks ahead.
Perhaps this is why commentary is re-titled as This “Year” in Supply Chain Tech since the world of tech has been upended by an ongoing series of events.
Brief Background
By now, many of our readers might have read or heard about the collapse of Silicon Valley Bank (SVB). This bank, rated as the 16th largest bank in the U.S. with a supposedly high rating, especially catered to the Silicon Valley based tech community. The bank was a preferred provider of venture capital tech financing deals, working capital and debt.
Indeed, the panic that led to an uncontrolled run on bank withdrawals came as a result of counselling by multiple private equity firms and venture capitalists for start-ups via phone, social media or text to immediately take their money out of the bank to ensure payroll and ongoing operational financing could be supported.
As the PitchBook platform astutely noted in its post event editorials: “SVB was nimble and innovative in a landscape where traditional banks had been fusty and slow.”
Private equity firms often mandated to their stables of financed start-ups that they do exclusive banking with SVB for all financial needs to ensure that the bank had lots of money to invest and loan out. The problem reportedly came from the realization that the bank failed to replaced its Chief Risk Manager for some time and so the bank became overexposed and had to take significant losses in cashing in U.S. Treasury debt holdings when depositors made their run of withdrawals.
Now known as Silicon Valley Bridge Bank, federal financial regulators have guaranteed customers that their deposits will be accessible beyond FDIC insured limits, and at the same time are seeking a buyer for this bank and its deposits.
As PitchBook has further noted: “Even if some semblance of the old SVB emerges from the wreckage, it seems likely that a different (read: adverse) regulatory environment is awaiting the successor bank not far down the road.”
The other elephant in the room is that SVB has since not been the only U.S. or global bank needing regulator intervention.
U.S. based First Republic Bank has secured a $30 billion bailout. Over this weekend news broke that Swiss based UBS Group will acquire troubled Credit Suisse for a reported $3.2 billion, while the Swiss National Bank will provide a $9 billion backstop to cover Credit Suisse losses.
Supply Chain Technology Exposure
Since our research focus has long been supply chain management and B2B network business processes, decision-making and enabling technology, we are keeping a keen eye on what and where the impacts might be in the coming weeks or months.
Exposure comes in many dimensions short and longer term, and in our view and the view of others, it is still too early to assess the overall impacts other than to share what companies and their supply chain management teams should be watchful for.
As an example, San Francisco based payroll services firm Rippling was a customer of SVB, and on March 10, could not process its customers’ employee paychecks. One of those customers was E-Commerce logistics start-up ShipHero and the company’s CEO was forced to orchestrate a manual payout to the start-up’s warehouse employees thru another facility while staff employees had to wait until the existing payroll services provider could gain access to funds from another bank.
Supply Chain media firm Freightwaves reportedly had all of its monies within SVB. Company CEO Craig Fuller indicated in an interview with business broadcasting network CNBC that because the firm’s payroll was funded in a U.S. Treasury based sweep account within SVB, which was inaccessible, the company’s board elected to front $1 million in added overnight funds in order to make the company’s payroll run.
Tech Market Scope
Regarding scope, supply chain business challenges and growth in online customer fulfillment and logistics have been a keen focus for the venture capital and tech community over the past three years.
In a recent Supply Lines update, Bloomberg cited data from PitchBook indicating that total funding for supply chain tech startups from 2020 through 2022 reached $124 billion, doubling the combined amount raised over the prior three years.
Our Supply Chain Matters This Week in Supply Chain Tech Editions over this period reflected the sheer amount of investment and the complement of private equity, venture and company investment arms that have funded these investments in their hopes for rewarding returns. Being less than three years old, the likelihood that some of these companies have not reached operating profitability levels may be high.
The Wall Street Journal’s CIO column (Paid subscription required) indicated today that the increased pressure on tech startups and their venture capital firms partners likely will spur a pick-up in technology focused M&A activity going forward. The premise provided is that unprofitable tech providers who would otherwise be challenged to garner lines of credit or loans from larger traditional banks likely will seek quicker exits at 2x or 3X multiples via M&A actions.
Our published 2023 Predictions Research Advisory included a supply chain technology focused prediction for continued M&A activity and now that has been magnified.
The counsel provided to company CIO’s is to assess start-up exposures among mission critical business support applications, or to evaluate implications if a start-up is acquired by a larger or competing tech provider. This was especially recommended for smaller cybersecurity risk mitigation tech firms.
We would add that this would particularly apply to Cloud based platforms including those supporting critical product management, planning or supply chain customer fulfillment or last mile based fulfilment processes.
The tech world often messages on the implications of supply chain disruptions and where advanced technology can help. The shoe is now on different footing in that an unforeseen, likely “Black Swan” event has impacted the venture capital advanced technology investment community.
Just like the Covid-19 pandemic compelled industry supply chain teams to immediately asses various options to regain control of product demand and supply network needs in order to maintain business continuity, some in supply tech face a similar challenge. This is fluid and will take time to sort out. But similarly, business as usual has forever changed.
Stay tuned.
Bob Ferrari
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