BANKING CRISIS

Silicon Valley Bank’s abrupt collapse sends shockwaves through Middle East

Abu Dhabi bankers see upside to bailing out startups while Israeli tech executives demand their cash back and Netanyahu tweets concern

NOAH BERGER/AFP VIA GETTY IMAGES

NOAH BERGER/AFP VIA GETTY IMAGES

Police officers leave Silicon Valley Bank's headquarters in Santa Clara, California, on March 10 after federal authorities seized its assets in the wake of a run on deposits

DUBAI, United Arab Emirates – The sudden collapse of Silicon Valley Bank in Santa Clara, Calif., reverberated more than 7,000 miles away in the Middle East, where cash-strapped startups struggled to meet their payrolls and local lenders seized the opportunity to help bridge the gap.

In Israel, where SVB was the lifeblood for many young technology businesses just beginning to generate revenue, company CEOs found locked doors at the California bank’s Tel Aviv branch when its executives failed to respond to their desperate messages. The crisis led Israeli Prime Minister Benjamin Netanyahu to tweet from a diplomatic visit to Rome that he was closely tracking the situation. 

Tel Aviv-based Bank Hapoalim and Israel Discount Bank, meanwhile, circulated word that they could help startups pay immediate bills. Signature Bank, a New York-based lender active in real estate and popular with start-ups, also collapsed on Sunday. The U.S. Federal Deposit Insurance Corp. announced an emergency bailout program hours later and said it would pay depositors 100% of the money they had in both banks.

SVB’s demise, the second-largest bank collapse in U.S. history, was less of a disaster in the United Arab Emirates, which promotes itself as a center for germinating technology companies but has fewer startups than Israel. Lenders including Wio Bank, Zand Bank and MBank are ready to pick up the slack for SVB’s ailing customers, said Ryan Lemand, co-founder and CEO of Abu Dhabi-based Neovision Wealth Management.

“There’s an upside,” Lemand told The Circuit. “The problem will be solved relatively quickly. Then these banks will onboard them [as customers], said Lemand, who previously worked as a financial regulator and adviser on risk management for the UAE’s federal government.

Having enthusiastically adopted the brand name, “Start-Up Nation” from a book published in 2009 by Dan Senor and Saul Singer, Israel experienced the sudden collapse of SVB as more of a direct strike at the heart of its economy. Most of the money fueling some 9,500 tech companies operating in Israel comes from the U.S., and Israel’s venture capital firms are closely connected with some of the most prominent investors in Silicon Valley.

Israeli companies displayed in an animated crawl on SVB Israel office’s website include: Papaya Global, Mesh, Innovid, Verbit, GlassesUSA, WalkMe, Pyramid, 8Fig, Tremor International, Minute Media, SimilarWEb and Clarot. The bank has had a presence in Israel since early 2008, with a Tel Aviv office led by General Manager David Cohen. The entity, SVB Israel Advisors Ltd., employs more than a dozen staff working from its downtown office on Ha’Arba’a Street.

“I understand why firms here wanted to be able to say they were at Silicon Valley Bank when everything was in order,” Aviad Kimche, chief investment officer at KIMFO, a Ra’anana, Israel-based family office and money management firm, told The Circuit. “Still, an event like this supports my longtime conviction that Israeli startups should have their money in Israeli banks.”

Kimche’s sentiment was echoed by Yonaton Mandelbaum, a principal at TLV Partners, who told The Circuit that “bank redundancy is beneficial in this situation” but acknowledged that it “doesn’t apply to everyone and isn’t a panacea.”

After a two-day silence following the 60% plummet in SVB’s shares that wiped out $80 billion of its value when depositors rushed to withdraw their money, SVB’s Cohen posted a note on social media that sought to explain his predicament. The Federal Deposit Insurance Corp. took over the bank on Friday and set up a new entity that will pay clients up to $250,000 of their money, far short of many corporate depositors’ balances.

With the U.S. bank’s direct presence in Tel Aviv, “we managed to convince the Israeli innovation ecosystem to trust us and the SVB platform as its true long-term partner,” Cohen wrote. “The 40 hours that created the disaster of wiping SVB from earth are shocking and sad to me personally, to my team that I love and respect so much, to my colleagues across the globe and… to the entire industry.”

The impact of the bank’s collapse on the Israel tech landscape remains to be seen. Concerns that companies with working capital accounts at the bank will see their access to that money constrained were eased by the FDIC’s action, announced Sunday. Otherwise, companies would have been forced to hold back on paying employees and vendors without finding other sources of cash. Still, the prospect of hundreds of startups laying off staff or shutting their doors was a double whammy for Netanyahu, who has spent the last three months struggling to rebut criticism that his plan to overhaul the country’s court system is a threat to democracy that will inflict severe damage on the economy. 

The proposed legislation has triggered protests that have brought crowds of more than 100,000 into the streets of Tel Aviv every Saturday night for the past 10 weeks. Along with hundreds of Israeli economists who attacked the plan for politicizing the appointment of judges and neutralizing the Supreme Court’s ability to override legislation deemed illegal, the plan has been condemned by international figures ranging from Larry Summers, the former U.S. Treasury secretary, to billionaire businessman Michael Bloomberg, the ex-mayor of New York City.

“I am closely monitoring the collapse of the American investment bank, Silicon Valley Bank, which has led to a major crisis in the high-tech world,” Netanyahu said Saturday night on Twitter. “If necessary, out of responsibility to Israeli high-tech companies and employees, we will take steps to assist the Israeli companies, whose center of activity is in Israel, to weather the cash-flow crisis that has been created for them due to the turmoil.”

Adding an ironic twist to the twin crises was Eynat Guez, the CEO of Papaya Global, which runs a workplace management and payroll platform that has brought the company to a valuation of more than $1 billion. Two months ago, Guez addressed the Saturday night protests outside Tel Aviv’s iconic 46-story Azrieli towers and said she was withdrawing the company’s cash from Israeli banks because of the threat Netanyahu’s plan posed for the economy.

In light of the disaster at SVB — Papaya’s U.S. banker — Guez expressed her appreciation to Israeli lenders who stepped into the breach.

“Israel Discount Bank and Bank Hapoalim taking wonderful steps to support Israeli companies – immediate loans to companies alongside bridge loans to employees whose salaries may be delayed from the companies because of the SVB crisis,” she tweeted. “This is what true leadership looks like.”

Jonathan H. Ferziger reported from Dubai, UAE; Robert Lakin reported from Ra’anana, Israel.

Subscribe now to
The Daily Circuit

The Daily Circuit newsletter (coming soon!) connects doers and dealmakers in the Middle East and those who care about the region from afar. Sign up today to be among the first in the know.