With the collapse of Silicon Valley Bank (SVB) still fresh in the news, the ramifications it’ll have on agriculture companies and ag innovation still hangs in the balance.
But, one thing ag innovators can do to learn from the crisis of SVB is consider the importance of diversified funding options, says Oliver Chapman, CEO of supply chain specialist OCI Group.
“SVB was important for more than one reason,” Chapman said in a release. “Much of the publicity concerning the crisis has centered on the importance of the bank in providing deposit facilities for tech startups that might otherwise have struggled to find a bank willing to provide normal services. Without support from the FED and HSBC’s takeover of SVB in the UK, these deposits may have been in jeopardy.”
But he adds that there was more to SVB than a provider of traditional banking facilities to tech startups.
“Techs often have complex financial requirements, as indeed do many of the Venture Capitals that fund them,” Chapman said. “In the small, closely connected world of Silicon Valley and the global tech ecosystem for which it is the core hub, SVB was a key player in providing loans and complex financial services. The supply chain is a good example of a complex ecosystem that requires sophisticated financial arrangements. But unfortunately, banks are not always well-placed to understand the unique challenges of the supply chain.”
Chapman says that it’s important for companies to understand the supply chain, funding options and the importance of funding diversification. By diversifying your funding, you can have more of peace of mind if a disaster were ever to hit again.
“The Global Financial Crisis was caused by many parties failing to adequately perform their roles in the mortgage finance process — appraisers, rating agencies, mortgage underwriters, financial engineers, regulators,” said Anne Walsh, chief investment officer of Guggenheim Partners Investment Management in a blog. “It is clear to everyone now that SVB’s business strategy left it relying on a deposit base concentrated in a relatively homogeneous type of commercial customer. This lack of diversified funding sources was compounded by SVB’s portfolio asset allocations. Treasuries and Agencies might not carry credit risk, but they are exposed to market risk that has hit like a sledgehammer during the Fed’s aggressive 450 basis points of rate hikes over the past year.”
Though Walsh notes that SVB was the extreme case that got exposed first and worst, she notes that for everyone else, vulnerability to a dramatically swift and sharp rise in rates is just a matter of degree and management decision.
“The fallout from the SVB situation is still fluid, and we do not believe that this is a Lehman moment. It may, however, be a Bear Stearns moment,” she added. “The risks in the market that catalyzed the SVB collapse are still out there. Regulators have given financial market participants a break by backstopping the SVB depositors and creating the BTFP. Investors must remain alert to the disintermediation risks that have been brought on by the Fed’s unrelenting and ongoing quantitative tightening. Complacency is the investor’s enemy.”
