Silicon Valley Bank is the biggest bank failure in US history after Washington Mutual's collapse in 2008. AP
Silicon Valley Bank is the biggest bank failure in US history after Washington Mutual's collapse in 2008. AP
Silicon Valley Bank is the biggest bank failure in US history after Washington Mutual's collapse in 2008. AP
Silicon Valley Bank is the biggest bank failure in US history after Washington Mutual's collapse in 2008. AP

SVB collapse offers lessons to banks on start-up funding, Target Global says


Alvin R Cabral
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Global banks can learn lessons from the collapse of Silicon Valley Bank and tailor their offerings to the start-up sector to ensure they leverage the opportunities it provides, said the co-founder of technology investment firm Target Global.

Lenders should consider extending more of their services to the start-up industry as it provides an opportunity to diversify portfolios, Shmuel Chafets told The National.

“It's an opportunity globally for banks to get a peek at start-up financing and to get into the start-up level,” he said.

“In the long term, it would provide more funding for the industry.

“It would be very helpful for the start-up ecosystem. There would be more competition, diversity and risk and cash management.”

California-based SVB was the go-to bank for technology entrepreneurs and start-ups. At its peak, it was the 16th-largest bank in the US and the biggest in Silicon Valley, a global centre for technology and innovation.

US regulators seized SVB and placed it on receivership after it collapsed this month. On Monday, the US Federal Deposit Insurance Corporation confirmed that North Carolina-based First Citizens Bank & Trust would acquire SVB's assets.

It became the biggest bank failure in US history after Washington Mutual's collapse in 2008, which triggered the global financial crisis.

The saga highlighted the disadvantages of a bank concentrating the majority of its portfolio on certain industries, which, in this case, were start-ups and technology companies.

It also exposed the need to boost local funding for start-ups instead of them relying on overseas lenders.

“Moving forward, a collaboration between the banking industry and the venture capital community is vital to provide facilities and support start-ups and, consequently, minimise the reliance on having to use international banks,” Philip Bahoshy, founder of data platform Magnitt, said.

Target Global, one of the biggest VC funds in Europe and Israel, which has around €3 billion ($3.25 billion) of assets under management, is expanding its presence in the UAE market with the establishment of an office in Abu Dhabi Global Market.

Mr Chafets acknowledged the strength of the UAE's start-up ecosystem and the financial sector, both of which help the company's business development portfolio.

“Local commercial banks [in the country] have a good book when it comes to start-ups,” he said.

Shmuel Chafets, co-founder of Target Global. Photo: Target Global
Shmuel Chafets, co-founder of Target Global. Photo: Target Global

Target Global's expansion in the Emirates has a goal of putting the UAE on its investment map and bringing the country to the attention of investors looking for high-growth opportunities, he said.

“Yes, it's about investing, but it's also about bringing and helping our companies leverage what the UAE has offer,” he said.

“We have brought a big group of [start-up] founders to Abu Dhabi and Dubai to meet … people in the FinTech world, regulators, the government and other businesses.”

He did not give a timeline for when the office would open, although he said Target Global has been “consistently expanding” its operations in the UAE over the past eight years. It invested in local start-ups including beauty company Fresha, open banking platform Tarabut Gateway and FinTech start-up Rapyd.

We have brought a big group of [start-up] founders to Abu Dhabi and Dubai to meet ... people in the FinTech world, regulators, the government and other businesses
Shmuel Chafets,
co-founder of Target Global

“The establishment of VCs in ADGM builds confidence for more asset management firms to follow suit and choose Abu Dhabi as their regional home to expand their business operations, especially with its ideal geographical location and amiable tax and legal environment,” Arvind Ramamurthy, chief market development officer of ADGM, told The National.

Aside from ADGM, the investment firm will also work closely with Hub71, Abu Dhabi's global technology and start-up ecosystem, to build on scaling its network through strategic partners.

Target Global will focus on key verticals including consumer technology, mobility, logistics, health care and FinTech, as well as robotics, Mr Chafets said.

The size of its investments in start-ups range from €1 million to €5 million for those in the seed and series A rounds, €10 million to €30 million for series B and C, and up to €150 million to €200 million for those in the late stage, he said.

He acknowledged that start-ups continue to face challenges when it comes to funding, especially when compared to bigger, more established organisations.

“Good companies get funded in any environment. That's the truth. Sometimes they'll get funded in the terms that they want, but good companies get funding almost no matter what the environment is,” Mr Chafets said.

“It's more challenging for younger entrepreneurs and companies that have more to prove.”

UAE currency: the story behind the money in your pockets
Ultra processed foods

- Carbonated drinks, sweet or savoury packaged snacks, confectionery, mass-produced packaged breads and buns 

- margarines and spreads; cookies, biscuits, pastries, cakes, and cake mixes, breakfast cereals, cereal and energy bars;

- energy drinks, milk drinks, fruit yoghurts and fruit drinks, cocoa drinks, meat and chicken extracts and instant sauces

- infant formulas and follow-on milks, health and slimming products such as powdered or fortified meal and dish substitutes,

- many ready-to-heat products including pre-prepared pies and pasta and pizza dishes, poultry and fish nuggets and sticks, sausages, burgers, hot dogs, and other reconstituted meat products, powdered and packaged instant soups, noodles and desserts.

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'Moonshot'

Director: Chris Winterbauer

Stars: Lana Condor and Cole Sprouse 

Rating: 3/5

What is blockchain?

Blockchain is a form of distributed ledger technology, a digital system in which data is recorded across multiple places at the same time. Unlike traditional databases, DLTs have no central administrator or centralised data storage. They are transparent because the data is visible and, because they are automatically replicated and impossible to be tampered with, they are secure.

The main difference between blockchain and other forms of DLT is the way data is stored as ‘blocks’ – new transactions are added to the existing ‘chain’ of past transactions, hence the name ‘blockchain’. It is impossible to delete or modify information on the chain due to the replication of blocks across various locations.

Blockchain is mostly associated with cryptocurrency Bitcoin. Due to the inability to tamper with transactions, advocates say this makes the currency more secure and safer than traditional systems. It is maintained by a network of people referred to as ‘miners’, who receive rewards for solving complex mathematical equations that enable transactions to go through.

However, one of the major problems that has come to light has been the presence of illicit material buried in the Bitcoin blockchain, linking it to the dark web.

Other blockchain platforms can offer things like smart contracts, which are automatically implemented when specific conditions from all interested parties are reached, cutting the time involved and the risk of mistakes. Another use could be storing medical records, as patients can be confident their information cannot be changed. The technology can also be used in supply chains, voting and has the potential to used for storing property records.

Updated: March 30, 2023, 3:52 AM`