NEW YORK: Silicon Valley Bank’s stunning collapse has led to the freezing of tens of billions of dollars stored there by start-ups and their private equity backers, raising fears of a wider tech sector fallout.

The company, whose website says it is “the financial partner of the innovation economy”, was taken over Friday (Mar 10) by the US Federal Deposit Insurance Corporation (FDIC) to prevent further damage.

“SVB knew the entrepreneurial community,” Joseph DeSimone, a professor at Stanford University and founder of several start-ups, told AFP.

“They helped us recruit people, helped with securing mortgages for transplants, gave financial advice to new executives … So their disappearance is a real loss,” he said.

The company previously boasted that “nearly half” of technology and life science companies that had US funding banked with them, leading many to worry about the possible ripple effects of its collapse.

For banks that are FDIC-insured, only US$250,000 per account is guaranteed.

But according to SVB’s latest annual report, 96 per cent of its total US$173 billion in deposits was uninsured.

The FDIC said Friday that all accounts would quickly get access to the insured portions of their deposits, but that the rest would depend on how much is recovered from sales of the bank’s assets, an often lengthy process.

“The real victims of the SVB fallout are the depositors: Start-ups with 10 to 100 employees, who cannot make payroll, and will have to furlough or shutdown workers as soon as Monday,” tweeted Garry Tan, head of the well-known incubator Y Combinator.

He warned that “years of US innovation” are on the line, as an entire “generation of American start-ups” could be destroyed in a month or two.

“DOESN’T LOOK GOOD”

Activist investor Bill Ackman raised a similar alarm on Twitter, saying that SVB’s collapse “could destroy an important long-term driver of the economy”.

“If private capital can’t provide a solution, a highly dilutive gov’t (government) preferred bailout should be considered.”