As the Biden administration attempts to allay panic in the U.S. banking system following last week’s collapse of Silicon Valley Bank, analysts following the travel tech industry say start-ups might have some short-term financial issues, but the danger of longer-term implications has eased.
The second-largest bank failure in U.S. history, the Federal Deposit Insurance Corp. took control of SVB, which works with a significant portion of U.S. and U.K. startups, on Friday following a run on deposits. That led to a “real scramble” for Silicon Valley companies, Travel Tech Consulting president and founder Norm Rose said.
“Any time you can’t withdraw your money from an institution, the money that’s your profits or your customers’ money, that’s a real problem, especially on the latter part,” he said.
Several travel tech providers provided assurance over the weekend that their operations would continue. Navan, the recently rebranded TripActions, in a statement said that SVP was a “long-standing financial partner and customer” since the company’s inception but that “Navan’s financial position remains strong” following its closure.
“Less than 5 percent of our liquid assets were held by SVB,” Navan said in its statement. “We have a robust network of financial partners, including Goldman Sachs, Citibank and Bank of America and do not rely solely on SVB to provide our services.”
Virtual card payment startup Teampay on Friday afternoon said on Twitter that it “sees no risk to operations” despite its partnership with SVB, as it stores its funds in other institutions.
Sonder Holdings in a statement said it was “actively [monitoring] the evolving situation” with SVB. The short-term accommodation provider said as of March 9, it had about $2 million in an operating cash account and about $20 million in deposit accounts with SVB as well as a $60 million line of credit facility.
Some companies, including American Express Global Business Travel and AI software provider Pros, submitted filings with the U.S. Securities and Exchange Commission to inform investors that they do not have cash deposits or securities with SVB.
Beyond the travel tech industry, the collapse also hit companies that relied on accounts with SVB for expenses. In its statement, Navan advised clients with payment accounts linked to SVB to switch to another account to avoid disruptions in bookings. Travel management company startup TakeTwo said its U.S. operations team also worked over the weekend to assist clients using SVB payment tools, including health care management platform Intelycare.
IntelyCare corporate travel manager Tricia Jenkins, in a statement provided by TakeTwo, said the situation disrupted both the company’s direct-bill card and individual corporate cards but was able to update with online booking tool and get alternative payment tools in place “within hours” by working with TakeTwo.
Since Friday’s collapse, the Federal Reserve announced an emergency lending program, regulators have promised depositors full repayment and President Joe Biden told Americans to “have confidence that our system is safe” while promising to push for stricter banking regulations to prevent future failures. While the FDIC took control of a second bank, New York-based Signature Bank, on Sunday, TSI managing partner Matt Zito said the actions likely have prevented that “contagion” that would lead to additional bank failures.
“Everyone’s going to get their money out of SVB, and the lending facility will backstop anything more that comes down the pike,” he said. “Ultimately, this will blow by, and in a month we probably won’t even be talking about it.”
Zito, whose current focus is coaching travel CEOs on how to build sellable business, said it should be a wakeup call for travel tech companies on managing banking risk and avoiding having more than the $250,000 that is FDIC-insured in company checking accounts. He advises spreading out funds in multiple accounts and guaranteed investments, such as four-week U.S. treasury bills, a strategy he said that probably “80 to 90 percent” of startups currently are not following. Digital media player manufacturer Roku, for example, reported having almost $500 million, about a quarter of all its cash, in SVB.
Startups being able to demonstrate their ability to overcome future collapse in their pitch could mitigate the worry they are likely to see from investors in the short-term as a result of the collapse, Zito said. In the longer term, investments will remain available to “the best startups and best ideas, and the biggest ideas and the best teams,” he said.
Rose also expressed confidence in the future of travel tech startup investments.
“Even in the worst of times, investment comes back, and innovation comes back, and that’s a great testimony in the way of the American economy,” Rose said. “If this is pointing to some strain in the short term, in the medium and long term, things will be fine.”
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