The Silicon Valley Bank Shutdown. How Cracked is South Africa’s Funding Space?

The Silicon Valley Bank collapse can’t really stay out of the news at the moment. The news had broken that Silicon Valley Bank, the bank of choice for most startups and venture capitalists, had been shut down by the Federal Deposit Insurance Corporation (FDIC). Customers of SVB have been given the assurance in a memo provided by the FDIC that insured depositors will have access to their money by Monday.

The US government assured on Sunday night that depositors of the failed Silicon Valley Bank will have access to all of their money beginning Monday, March 13. There were some concerns that deposits are only insured up to $250,000 and non-insured depositors will be paid.

“Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” a joint statement by the heads of the Federal Reserve, Treasury Department, and FDIC said.

“After receiving a recommendation from the boards of the FDIC and the Federal Reserve and consulting with the President,” according to the regulators, Secretary Yellen, approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors.

Africans who feel they are related to the SVB in some way do not appear to be receiving the US government’s assurances. The greatest source of anxiety for the majority of Africans is the continent’s reliance on foreign VCs and investors. These are investors and VCs with ties to the SVB. No doubt, it might become more difficult to assess funds from foreign VCs after now, (which points towards inclusive growth), the Ouut examines just how much of a crack the SVB shutdown will exert on South Africa’s startup ecosystem.

A Capable Ecosystem

The most developed, broadly based economy on the African continent is found in South Africa. Stable institutions, a developed finance and services sector, solid infrastructure, and knowledgeable local partners all strengthen the investment climate. In contrast to several other growing African countries, the government of South Africa has spearheaded the growth and industrialization of indigenous enterprise. a move that significantly lessened reliance on trading partners abroad.

Without a doubt, foreign investors’ activities have aided in the development of Africa’s tech sector, and the collapse of SVB will have a significant impact on the continent’s funding. For instance, Y-Combinator and Techstars, two US-based accelerators that collaborate with SVB, annually bring on a number of early-stage entrepreneurs from Africa. The current bank failure could mean lower finance, smaller recruitment, or perhaps worse.

Although millions of people have been lifted out of poverty and given greater access to finance via foreign investment, South Africa has made impressive social progress over the past 20 years. As a result of its inclusive strategy, it has become the best consumer class in Africa and the continent’s top performer economically. Also, foreign accelerators have not been enchanted by South African startups. For instance, YC invested in the Nigerian firm Paystack in 2016 as its first African investment. Around 70% of the 95 total African firms that had been funded by 2022 were from the continent’s westernmost region.

The public sector works diligently to meet demands for public spending, infrastructure growth, and social safety. The prioritization of a strong revenue base can help mitigate the impending funding crisis that has been created by the SVB collapse. Maybe South Africa will not really crack at all.