The recent collapse of Silicon Valley Bank has no doubt put tech companies on alert as several Nigerian tech startups have been reportedly exposed to the bank crisis, as tech entrepreneurs predict a negative impact on these startups.
VC companies like the Y combinator accelerator which help African Tech startups raise funds were reported to be affected, as 30 percent of their portfolio companies were impacted, and Nigerian tech startups make up part of those companies.
Nigerian entrepreneur and Co-Founder of Andela Iyinoluwa Aboyeji speaking on the impact of SVB collapse on tech startups in Nigeria disclosed that the prestigious tech-focused Bank was one of the most prolific lenders and banking institutions that catered to a large swath of the startup and venture community, which is why many of these tech companies banked with it.
He further added that the foreign exchange problems in Nigeria were what spurred most startups to commit their funds to foreign banks.
In his words,
“Silicon Valley Bank was one of the few banks that understood how to bank technology companies. Most of our local banks don’t understand how to bank us and that was why there were so many tech companies that went to SVB. Most of the affected startups could have kept their money at home. The only challenge is that there are lots of regulations around the restriction of foreign exchange”.
“For instance, VC companies, like the Y combinator accelerator, which help African Tech startups raise funds, were impacted, as 30 percent of their portfolio companies were impacted, and Nigerian tech startups were part of the portfolio companies of Y combinator accelerator.”
He, therefore, urged the Nigerian government to develop a tech bank, which would function slightly differently from the way normal banks operate, in order to protect the nation’s technology startups hub.
Also, the Co-founder of Digital of Carbon, a digital lending company Ngozi Dozie said that the collapse of Silicon Valley Bank may result in less funding for African startups this year.
According to him, most investments into startups are financed by Silicon Valley Bank and its peers and with the recent developments, Venture Capitalists are now faced with uncertainties that will make them withdraw and become less adventurous in investing.
Investors King understands that if SVB’s collapse degenerates into a broader economic downturn or a contraction in the tech industry, it could become more difficult for Nigerian startups to raise capital or attract investment, which could slow down the growth of the tech industry in the country and lead to a reduction in the number of new startups.