Silicon Valley Bank’s collapse has sparked increased uncertainty and caution, particularly in the tech startup ecosystem globally and the Middle East, including  startups that were not directly affected.

Silicon Valley Bank’s collapse has sparked increased uncertainty and caution, particularly in the tech startup ecosystem globally and the Middle East, including  startups that were not directly affected.  

“As a result, indices endured some pressure as the news sent shockwaves through the markets. As global central banks continue to tighten monetary policy, it has rendered borrowing more expensive. As a result, startups are becoming more risk averse,” explained Vijay Valecha, Chief Investment Officer, Century Financial.

In recent years the Middle East has offered a business-friendly regulatory environment and policies to support the growth of new ventures. For instance, startups facing compliance issues of exposure to risky lenders were able to get certain exemptions and incentives such as the Deposit Protection Scheme administered by the UAE Central Bank. 

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“As a result, any economic repercussions arising from the unfortunate events are likely to be contained and short-lived within the Middle East,” added Valecha.

However, SVB was providing venture capital funding to startups across the globe, including in the Middle East which means that the collapse of the US lender has lowered the amount of funding available to global startups.

“With the collapse of a major player like SVB, many of these startups are now facing uncertainty about their future funding prospects. This is especially true for those that have yet to receive the full amount of funding they were promised by their investors,” Maroun Abou Harb, Associate at BSA.

Startups operating in the Middle East, perhaps, have a competitive advantage relative due to a diversified source of funding and government policies to support their growth. Several family-owned businesses and well-established corporations have supported new ventures.

“The collapse of SVB can still have a significant impact on the startup ecosystem in the Middle East, even for those startups that were not directly affected. Many startups in the region have received funding from US-based VC firms that were also clients of SVB. These VC firms may now be unable to fulfill their commitments to their portfolio companies, leaving startups without the full amount of funding they were promised,” added Abou Harb who explained that the investor confidence “may be shaken” which will make it difficult for  startups to attract new investment in the future.

“This could have a domino effect on the entire industry, stifling growth and innovation and making it more difficult for new startups to enter the market,” he added.

Jonathan Lau,Co-founder of startup company, Qashio said that the collapse of SVB has caused many startups including several of Qashio’s clients to have funds locked up temporarily.

“In the long term, the main concern will be with regard to tech investor sentiment, particularly when it comes to lending and venture debt, but it remains to be seen whether there will be any lasting damage,” he said.

“For the MENA region, we do not foresee any serious negative implications for the local tech startups here. Many local fintechs, including ours, usually hold client deposits with the region’s most secure and prominent banks and they have no reason to worry about counterparty risk,” he added.