Silicon Valley Bank Failure, Impact on Quantum - Our Interim Poll Results

A leading bank serving the technical community, Silicon Valley Bank (SVB), has failed and nearly nearly $175 billion in customer deposits under the control of the Federal Deposit Insurance Corporation (FDIC). The customer's first $250,000 of deposits is covered by FDIC insurance, but any amount over that is not guaranteed to be reimbursed. The Silicon Valley Bank did have a lot of assets, but they are not immediately liquid. The FDIC will be selling off those assets to reimburse the non-insured amounts, but that could take some amount of time. So this will cause some startups great difficulties because they will not be able to withdraw cash to meet their daily operating requirements.

With the announcement of SVB's failure this week, Global Quantum Intelligence (GQI) has been running a quick survey on LinkedIn to help assess the impact on the quantum community. Our survey was started on Friday, March 10 and we report on the interim results as of the evening of Saturday, March 11.

The survey asked quantum stakeholders to confidentially indicate their status with one of four categories describing the impact on their organizations:

1. Yes - Large chunk of our capital

2. Yes - But only a small amount

3. Yes - But we pulled out in time

4. No - We're safe

As of the time this article is being written we had 58 responses, but we are not including a few that did not qualify as working in quantum tech. The results were as follows:

1. 1 quantum tech hardware company and 1 small consulting company said they were significantly affected

2. 6 companies, all of which larger quantum tech startups said they were affected for a small amount

3. 45 companies said no, they were safe. This included major vendors, large startups and two dozen of well known freelancers, service providers, consultants and experts

Out of the leading 20 startups in the space a total of 10 submitted responses and three of which indicated they were somewhat affected. One company indicated that although they do have a large amount of money tied up at SVB, they have a steady stream of customer revenue which they expect can cover their operations and allow them to operate as usual.

So from a direct impact standpoint, our initial take is that while this situation may create some challenges for a small handful of quantum companies, the overall quantum tech space at large seems to have escaped the worst in terms of immediate financial consequences.

However, what we did not assess in the survey was how how this could affect future VC funding for the near future. Many venture funds kept their cash reserves at the SVB and only one quantum tech investor responded to our survey. If a venture firm that was considering a potential quantum investment has its cash tied up at SVB, they may have to postpone pending deals until the cash is freed up. In addition, this situation might cause some VCs to become more cautious, in general, while they wait to see what happens to the overall economy.

There will certainly be more to play out within the next week or so. Perhaps a white knight in the form of a larger bank or some U.S. government program might come in to acquire or guarantee SVB's assets and deposits. But overall, the quantum ecosystem worldwide is quite diverse and we expect the impact on the industry overall from SVB's failure to be minimal. However, if the problem spreads and many more bank failures develop, it could create a more general problem for the economy and the impact on quantum could become more significant.

UPDATE

The U.S. Department of the Treasury, Federal Reserve, and FDIC and created a solution for the uninsured depositors at Silicon Valley Bank. No one will incur a loss. You can read their statement here. And Silicon Valley Bank’s U.K. arm will be acquired by HSBC for a sum of 1 English Pound (about $1.22). A news release from HSBC with the details can be found here. A question still remains about what happens to Silicon Valley Bank's Canadian operations. So the immediate concern about an impact on a few quantum startups of SVB's failure has been eliminated, at least for U.S. and U.K. companies.

March 11, 2023 / March 13, 2023 (Update)