The Israeli branch of the Silicon Valley Bank has closed, N12 reported Sunday, with its approximately 40 employees stopping work.
A handful of employees will stay on for up to 45 days, possibly to help ensure the smooth transfer for the bank should it be sold, according to N12.
Israeli start-ups face decreased valuation, increased competition for funding and logistical challenges in the coming weeks following the collapse of Silicon Valley Bank on Saturday.
The bank announced several billions of dollars in losses and saw a hefty 60% plunge in its share price, followed by a further 20% in after market trading.
On Sunday, it was reported that SVB’s Israeli branch closed, ceasing work for around 40 employees.
“We promised to act so that the Israeli economy would be an island of stability and certainty in the turbulent economic waters of the world, and with God's help we will do so."
Finance Minister Bezalel Smotrich
The crash is expected to decrease the valuation of the hundreds of Israeli clients, start-ups and venture capital firms believed to be served by SVB, which is a central player in the global VC and start-up ecosystem.
Prime Minister Benjamin Netanyahu said, “We are obligated to protect our companies, the main activity of which is – and will remain – in Israel, as well as their employees. But what has been proven here again is that the Israeli economy that we have built here in the last 20 years is one of the most secure and stable economies in the world.”
Early-stage companies in need of capital may find themselves in further trouble, as mitigating the damage done to pre-established companies that have been damaged by the debacle rises to the top of investors’ priority lists, resulting in a lower amount of money available for new investments.
“According to estimates, about 90% of the deposits that remained in SVB are not insured. This means that many companies have lost their fundraising funds and are already today in an acute liquidity crisis. These companies will have to raise new capital quickly, which will make them pay a high price for the money or start laying off workers and stopping activities,” noted Ori Greenfeld, chief strategist at Psagot Investment House.
Rough few years for Israel's start-ups
Not only will SVB’s harm Israeli companies on a purely financial level, but it’s already causing operational headaches.
Companies that were not able to transfer their SVB-held funds before their assets were frozen find themselves in a liquidity crunch until their funds are again made available (though it is unclear to what extent they will be harmed).
The SVB crash has already impacted stock prices for Israeli companies, banks and insurers, whose TASE stock indexes fell by 4%, 2.5% and 4.2%, respectively, as of Sunday.
This is the latest stroke of bad luck to hit the Israeli start-up industry – the pandemic in 2020 was a huge hurdle to be overcome, followed by global inflation brought on by geopolitical conflicts in the following years, which has led to numerous reports of hi-tech layoffs seemingly every month.
“It’s like we’re in the middle of the ocean and wave after wave is swallowing start-ups and literally all the venture capital ecosystem. And this is a big wave,” said Tiran Rothman, vice president at international consulting and research company Frost & Sullivan. “We can’t even begin to understand the magnitude of this wave yet.”
Wider economic impact
There is at least one silver lining to the situation, however: Rothman pointed out that local SVB competitors such as Leumi Tech, Discount Tech and Poalim Hi-Tech are likely to benefit from the sudden retraction of their biggest competitor.
Only hours after SVB’s crash, Leumi and Hapoalim announced that their tech branches would issue loans to cover start-ups and tech firms without access to their credit.
“Because of the relatively higher stability of the Israeli banking system than the US system, maybe they will have some benefits from this,” Rothman said. “That’s the only positive angle that I can see right now.”
Can the government stem the flow of blood?
According to Greenfeld, SVB’s collapse is likely to have an effect on several of the Bank of Israel’s current considerations, including inflation, the labor market, the foreign exchange market, and the many warnings issued by international rating companies in advance of the government’s proposed judicial reform.
“We will not be surprised at all if we see in the coming weeks an unusual wave of layoffs in the hi-tech industry, especially among start-ups at various stages. Naturally, the Israeli economy, in which the hi-tech sector has a large weight, will be affected by this and therefore the Bank of Israel must take the event and its consequences as part of the considerations of the future interest rate path,” he said.
The government is taking steps to mitigate expected damage to the country’s hi-tech sector in the wake of SVB’s collapse.
On Saturday night, Finance Minister Bezalel Smotrich ordered the establishment of a dedicated team to monitor the issue, which will be led by the director-general of the ministry, Shlomi Heizler, and will be composed of representatives of the Finance Ministry, the Bank of Israel, the Securities Authority and the Israel Innovation Authority.
The team will be in contact with the local hi-tech industry, funds and financial institutions in Israel and the US for the purpose of receiving data and analyzing the possible impact on the Israeli economy and, as necessary, for formulating a response to Israeli companies.
“The collapse of the bank is a significant event for both the American economy and the Israeli economy,” said Smotrich, highlighting commitments made by the ministry amid concerns about the upcoming judicial system reform.
“We promised to act so that the Israeli economy would be an island of stability and certainty in the turbulent economic waters of the world, and with God’s help, we will do so. The State of Israel will stand beside the local hi-tech industry, help it overcome the crisis and continue the momentum of development and action,” he said.
eam member Yair Avidan, the Bank of Israel’s supervisor of banks, highlighted the lack of attention to the financial system’s stability as a culprit in SVB’s downfall.
“We are closely examining the case, and monitoring both the immediate developments and those that may come in any ‘following waves’ that may take place,” he said.