Weekly Brief: Start-Ups Tremble as Tech Supporting Bank Goes Pop!

Commentary By Andrew Tolve

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13th March 2023

The sudden collapse of Silicon Valley Bank (SVB) roiled global markets and sent shock waves rippling through the tech start-up community, with potentially dire consequences for those in the transportation sector.

SVB was the primary banking partner for venture capital firms in the tech industry and had a 40-year history of turning fledgling start-ups into world-changing unicorns, including the likes of Tesla. Last Wednesday the bank revealed that owing to some bad investments and the pressure of rising interest rates it had sold $2.25Bn in shares to stabilize its balance sheet. Venture capital firms panicked and advised their portfolio companies to withdraw their money from SVB as quickly as possible. By Friday, in the span of 48 hours, the Federal Deposit Insurance Corporation (FDIC) had stepped in and the bank was finished, marking the second largest collapse of a bank in US history.

Autonomous vehicle and electric vehicle start-ups were already struggling to raise capital before last week’s collapse. Over the weekend the US Treasury Department shuttered another bank, New-York based Signature Bank, in an attempt to protect consumers and limit the fallout from SVB’s collapse but what this week will hold remains to be seen. The government announced on Sunday that all SVB customers will have access to their money starting Monday. That won’t alleviate the stress on AV and EV start-ups, many of which were already desperate for new rounds of VC funding and now face a brutal environment.

Last week EV start-up Arrival released its fourth-quarter and full-year earnings reports that painted a grim outlook. The company burned through about $600M in the fourth quarter and doesn’t expect to generate any revenue until at least 2024, when it hopes to start selling its zero-emission urban utility vans and public buses. The company mentioned that it potentially had a life-saving deal in the works for new funding, to be announced Monday. No word yet when this article went to press if that deal has come to fruition but given the forces at play, I would be shocked if it’s finalized anytime soon.

Arrival was one of many ill-fated EV companies to go public via a reverse merger SPAC during the pandemic. Others included Lordstown Motors, Canoe, Lucid Motors, Nikola, Faraday Future, Fisker and Electric Last Mile Solutions. Most of those companies have either folded or are on the ropes. Faraday Future is still afloat and said last week in an earnings call that it’s ready to start producing its FF 91 Futurist EV soon, contingent on raising another $50M in fresh VC capital and collecting other outstanding investments that have been promised to it. Again, SVB’s collapse will make FF’s task harder.

AV start-ups are in an equally precarious situation. Even well-heeled industry leaders like Waymo have showed signs of strain of late. Two weeks ago the company laid off 137 of its employees in its second round of job cuts already this year. Late last year Ford and Volkswagen decided to shut down their joint self-driving venture Argo AI, in large part because Argo AI was struggling to find new investors to cover the immense cost of trying to bring a robo-taxi to market. For those AV start-ups still standing, that search for new investors will become more difficult once the dust settles on SVB in the coming weeks. We’ll continue to monitor the story as it unfolds.