“That’s how capitalism works,” SVB collapse and nutrition and food start-ups take a hit

16 Mar 2023 --- Start-ups within the nutrition and food industry have suffered blocked accounts after Silicon Valley Bank (SVB), the 16th largest US bank, collapsed on Friday, March 10. Experts suggest this was partly caused by a lack of diversification. The collapse is the second largest bank failure in US history, after the financial crisis in 2008.

“This poses a major existential threat to many small businesses, especially those creating physical goods. Not having access to working capital severely hampers our ability to create sellable products, manage inventory and keep the lights on,” Vanessa Pham and Kim Pham, co-founders of Omsom, an Asian food start-up that was heavily affected by the collapse, said in a public statement.

The SVB is known for backing start-ups in Silicon Valley with high risk, which major banks usually decline, and therefore it has a significant influence in the tech industry. 

“They knowingly took a risk, and when the risk didn’t pay off, investors lost their money. That’s how capitalism works,” US President Joe Biden commented on the collapse.

He further stated that the US banking system is safe and that small business accounts in the SVB will be there “when they need them.”

“Omsom had all of our capital in an SVB account, which was seized by the FDIC (Federal Deposit Insurance Corporation). As a result, we may not have access to the funds in our account, beyond the US$250,000 insured by the FDIC, for an unknown time,” says Pham and Pham.

Experts have blamed crypto markets, although crypto advocates have blamed centralized banking systems.Pointing fingers
The collapse has been explained by two factors: the bank’s lack of diversification as it was too concentrated in one industry, and weakened regulations from a deregulated banking system throughout the last years.

Some experts have also blamed crypto markets, although crypto advocates blame centralized banking systems.

David Yermack, professor of finance at NYU’s Stern School of Business, told ABC News: “I don’t think crypto has much of a role. Crypto is more or less a bystander in all of this, just like all the other companies who had deposited money.”

“All the regulators had to do was read the reports that Silicon Valley Bank was submitting, and they would have seen the problem,” Senator John Kennedy, Republican of Louisiana and a member of the Banking Committee, said on the Senate floor.

“When large institutions and gatekeepers make big changes, it’s often the smallest and most marginalized groups who feel the impact the heaviest,” Omsom adds. “We are navigating a recession, the hangover of a pandemic, sociopolitical traumas and now the second largest bank failure in American history.”

Nutrition and food start-ups
Another company affected is Viome, an AI-driven company with techniques for the gut microbiome. The customized nutrition company studies solutions to detect early-stage cancers and other chronic diseases. Viome had US$25 million in assets with the SVB on Friday when it collapsed.

“We took zero risk by keeping our money in check with a 0% interest rate to make sure our money was always ours, and suddenly we woke up Friday morning, and we had no money,” Naveen Jain, CEO and founder of Viome, told CBS News.

Other affected companies are the food start-up MeliBio, a manufacturer of plant-based honey, which had 90% of its assets in SVB, and Equii, a company producing fermented grains for high-protein flours with all its funds with SVB.

The US Federal Bank has been criticized for its lack of preventative action. However, it’s working with the Biden administration, the FDIC and the Treasury Department to address this issue and restore the collapse.

By Beatrice Wihlander