Skip to content Skip to Search
Skip navigation

From crisis to opportunity: Navigating SVB’s collapse

The failure of SVB creates both challenges and opportunities for investors

SVB Reuters/Dado Ruvic/Illustration
By understanding the economic landscape, investors can generate returns even in the face of uncertainty

The collapse of Silicon Valley Bank on March 10 has shaken the financial world and sparked concerns about the stability of the global economy.

The bank, which had a staggering $212 billion in assets and boasted a clientele of some of the most powerful tech investors globally, failed with astonishing speed, forcing regulators to take it over.

The reasons behind SVB’s collapse are numerous, with one of the primary causes being an asset-liability mismatch.

The bank had purchased securities worth $100 billion in 2020 and 2021, but without hedging them. This resulted in an imbalance between the bank’s deposits and its assets, leaving it with a negative net equity position.

As outflows began to occur, SVB had to sell these securities to meet its obligations, realising significant losses. This, in turn, quickly eroded the bank’s equity until it was deemed insolvent.

However, the problem is not limited to SVB alone. The last 12 months have seen over 290 global rate hikes, and while regulators and governments may implement monetary policies to support the global economy, the effectiveness of these policies remains uncertain. 

The current environment is prompting investors to consider potential risks, such as contagion and ripple effects that could spread to other areas of the market where leverage sits, leading to a large event shock similar to that witnessed with SVB.

There is also the risk of a potential slowdown in the real economy as a result of reduced spending, de-risking, increased cash holdings and mass layoffs, which could lead to lower earnings per share and equity values.

Despite these challenges, SVB’s collapse also presents several opportunities for those who are able to navigate market conditions effectively, and know where to look, and where to put their money. 

It’s no secret that many early-stage tech investors could be in trouble. According to recent reports, four out of five startups are at risk of failure this year, with less than 12 months of runway on their balance sheets.

Few venture capitalists (VCs) have factored this risk into their balance sheets, which means they will need to mark their investment portfolios materially lower, which could come as a surprise to many of their limited partners. 

What’s more, many early startup employees waited too long to get liquidity, and they will now be forced to look for buyers or liquidity providers at the worst possible time.

The result could be a period of unmet liquidity needs lasting six to 18 months, with even more companies facing similar challenges.

Opportunities for investors

One opportunity stems from the fact that SVB was a general liquidity provider to VCs and private tech companies.

A portion of this capital flowed to stockholders, but that capital is now gone. As a result, the market will see a significant reduction in capital availability, leading to more opportunities for investors with accessible capital.

Finally, crossover investors and family offices, among others, are now holding off on deploying capital in private markets for the remainder of 2023.

These capital sources are gone, creating an opportunity for providers who are able to deploy capital and make investments in private markets where others may not be able to.

In short, the collapse of SVB has created significant challenges for the financial industry and the wider economy, generating uncertainty and regrettable job and business losses.

However, it is expected that the repercussions from this event will be contained and short-lived in the Middle East.

Despite the difficulties, the situation also presents opportunities for investors who are able to navigate the current market conditions effectively.

By understanding the landscape and identifying potential opportunities, investors can position themselves for success and generate returns even in the face of uncertainty.

Hussain Al Alawi is founder and managing director at Noorwood Group, the Middle East partner of Goanna Capital, which invests in private companies in the global internet, software, consumer and financial technology industries

Latest articles

The UAE's minister of industry and advanced technology, Sultan Al Jaber, left, met Karl Nehammer, Chancellor of Austria, for talks on trade

Austrian finance unicorn to open in UAE

Austria’s first unicorn has announced plans to set up in Dubai, as officials from the UAE hold top-level talks in Vienna to build on a 22 percent increase in bilateral trade last year A unicorn is a startup company valued at more than $1 billion that is privately owned and not listed on a share […]

Mads Bo Larsen, vice-president of Novo Nordisk UAE, says a local plant 'will not solve anything' in the face of the country's Ozempic shortage Video length: 3:39

UAE diabetics face Ozempic shortage due to weight-loss users

The manufacturer of Ozempic is “troubled” by the fact the drug, which was designed to help people with diabetes, is in short supply in the UAE because of the high number of consumers using it for its weight loss side-effects. Danish pharmaceutical company Novo Nordisk introduced Wegovy, a drug meant to specifically tackle obesity, to […]

A market in Cairo. The meeting of the central bank’s MPC was its first since Egypt secured $8 billion in financial support from the IMF in March

Egypt holds interest rate hike despite slowdown

The Central Bank of Egypt has kept its key interest rates unchanged despite a slowdown in economic growth. The monetary policy committee (MPC) left the lending rate unchanged at 28.25 percent and the deposit rate at 27.25 percent. Inflation has eased since the annual headline and core inflation peaked at 38 percent in September 2023 […]

The number of electric vehicles in Dubai passed 30,000 by the end of April 2024

Parkin to roll out more green EV chargers across Dubai

Dubai is expanding its network of electric vehicle (EV) chargers as part of the emirate’s push to accelerate smart and green mobility. Parkin, the state-backed parking management company, has signed an agreement with the Dubai Electricity and Water Authority (Dewa) to increase the number of EV green charger stations at prime locations across the emirate. Parkin […]