The collapse of SVB - it just became even more difficult to raise pre-seed

For context: over the past few months, I’ve been focusing more on our fundraising efforts. We’re raising our pre-seed round here in the UK so I’ve been following trends to inform our strategy.

You may have heard the news that Silicon Valley Bank in the US has recently collapsed, and the Bank of England is placing its UK arm in insolvency. You’re probably thinking “I don’t bank with them, so it doesn’t affect me”, right?

SVB’s collapse may not have a direct impact on your pre-seed raise but it will signal a larger trend in the venture capital industry which will have a trickle down effect on us pre-seed stage startups.

How?

Firstly, UK Startups who didn’t move their funds out of the bank will only be paid out £85,000 under the Financial Services Compensation Scheme, this means those startups (who were previously funded) will have to raise more funds to keep their heads above water. We may see more down rounds being raised — bad for them, good for hungry investors, especially bad for us first round raisers since it now means startups who are significantly further along their journey are likely to be targeting angel and pre-seed stage investors as well. Perhaps the number of startups directly impacted by the UK collapse is not significant — but neither is the number of pre-seed stage investors on this side of the pond.

Secondly, investors will be looking to protect their current portfolio companies, I can attest to this having had feedback from some of our outreach activities — an event like this will make investors double-down on this approach. And if ever there was a group that adopted herd mentality, it would be investors. In fact, investments in new propositions have plummeted since 2022 and are currently at an all time low over in the US according to Carta.

It’s prob safe to assume things aren’t that much different in the UK — the number of pre-seed stage deals has been declining since 2016.

There’s no doubt that the collapse of SVB is a huge event in the startup ecosystem, here’s a great condensed explanation if you’re wondering what the fuss is about:

Recent events like these within the startup ecosystem have demonstrated just how out of whack the entire landscape is. We’ve recognised it’s time for change and our sweat equity platform will help plug that pre-seed / pre-revenue gap in time but for now, well I’m rethinking our fundraising strategy…