How ‘Project Yeti’ rescued UK tech from a Monday morning bloodbath

On Friday afternoon, executives at the UK branch of Silicon Valley Bank (SVB) were still insisting that the lender was immune to the chaos engulfing its US parent. 

Erin Platts, the head of SVB UK, held a panicked Zoom meeting with customers, seeking to reassure them that their deposits were safe.

Platts, an American who has worked for the bank for more than 18 years, was unable to stem the tide. Customers withdrew more than £3bn last week as the panic engulfing the American parent company, SVB Financial, spread to the UK bank. Its deposits dwindled from more than £10bn to around £6.7bn by Friday evening, according to sources with knowledge of its finances.

Officials alerted Jeremy Hunt to the bank's increasingly perilous financial position on Friday afternoon, as the Chancellor was preparing for a round of pre-Budget weekend broadcast interviews.

At ten minutes to midnight, The Bank of England seized control, saying it would put SVB UK into a insolvency procedure designed for failing banks by the end of the weekend. In a short statement, Threadneedle Street sought to downplay the drama, saying: “SVB UK has a limited presence in the UK and no critical functions supporting the financial system.”

Hunt and Bank of England Governor Andrew Bailey spoke early on Saturday. According to sources involved in the weekend’s rescue of the bank, the Government and regulators initially focused on the bank’s marginal impact on financial stability.

Privately, tech founders and investors were furious about statements downplaying the financial stability risk of SVB’s possible collapse. Any failure would be devastating for the tech industry and hundreds of start-ups were panicking about how they would pay staff.

Andrew Griffith, the City minister, led talks with representatives from the start-up and venture capital world.

Tech groups pushed Griffith to take action, while hundreds of start-ups signed an open letter to Jeremy Hunt urging him to take action. They warned that the bank’s collapse presented an “existential threat” to the tech sector.

One person involved in discussions over the weekend said: “After some significant political pressure from the tech industry, it became clear that leaving it to [collapse] wasn’t an option.”

Treasury officials sprung into action, launching what became codenamed “Project Yeti” and convening a hastily-arranged video call roundtable on Saturday evening.  

Griffith and Michelle Donelan, the Science and Technology Secretary, heard from industry representatives including: Dominic Hallas of the start-up group Coadec; Brent Hoberman, the lastminute.com founder behind industry group Founders Forum; Gerard Grech of TechNation; Charlotte Crosswell of the Centre for Finance, Innovation and Technology; David Postings of UK Finance; and investors Matt Clifford and Saul Klein, alongside other industry bodies.

On the 40-minute call, bosses warned of a bloodbath on Monday if the bank was not rescued, with hundreds of start-ups unable to pay staff or suppliers. The bank itself was publicly silent, but managers emailed customers a link to the open letter sent to Hunt, an implicit plea for Government support.

By Saturday night, it was clear that action would have to be taken before markets opened on Monday morning. Rishi Sunak, who was preparing to board a flight to San Diego for defence talks with Joe Biden and Australian Prime Minister Anthony Albanese, held a 9pm conference call with Hunt, Bailey and Sam Woods, the head of the Prudential Regulation Authority.

Government officials ruled out a full taxpayer bail-out of the bank, but intervention such as the British Business Bank underwriting loans remained on the table.

By this point, potential bidders were already circling. Anthony Watson, the Labour-supporting chief executive of the upstart Bank of London, had spent Friday canvassing investors and potential private equity partners about a potential takeover of the bank, appointing advisers at Perella Weinberg. 

Oaknorth, the SoftBank-backed bank that employs former chancellor Philip Hammond, and ADQ, the Abu Dhabi wealth fund, had also expressed an interest.

Dealmakers at Rothschild had opened a data room allowing prospective bidders to look at SVB UK’s book. “I’d been looking at it since 09:45 on Saturday morning,” said one executive at a top four bank.

By Sunday morning, selling the bank to a private buyer became Treasury officials’ preferred option, but it was unclear who should buy it. Oaknorth and Bank of London were both relatively new banks, and there were misgivings about the Abu Dhabi fund, although the option was being promoted by corners of the tech industry.

The fund is believed to have sought assurances from the Treasury that it would provide a backstop to heavy loan losses. Hunt was desperate to avoid taxpayers’ being exposed, and regulators insisted on the buyer having a licence. “The BoE said unless you’re a British bank you’re not touching this,” a source says.

Hunt spoke directly to potential bidders including HSBC, which was looking to build up its start-up business and had emerged as a late candidate. 

Twice on Sunday, Sunak held mid-flight calls with the Chancellor and Bailey. The Prime Minister told reporters over the Atlantic that there was “no systemic contagion risk” from the bank’s collapse, but nor was there any deal.

Two bidders – HSBC and the Bank of London – are ultimately believed to have submitted proposals, both offering to pay £1. 

Even in the early hours of the morning, problems were emerging. SVB UK had licensed its software from its US parent, which had been taken over by American regulators; it was also unclear whether its clearing bank, NatWest, would be able to resume services on Monday morning. As part of the deal, HSBC would have to be exempted from certain rules requiring high-street banks to be ring-fenced from complicated corporate customers.

“We only had 24 hours in a room to make a multi-billion pound decision, everybody was working 24/7 and operating on no sleep,” says one person involved in the talks. 

Tech start-ups, having heard nothing from the Treasury since Friday morning, were making plans for the worst. “There were WhatsApps flying all over the place,” says someone involved in talks with the Government.

In the early hours of Monday morning, HSBC emerged as the Treasury’s preferred bidder, with a deal finalised around two hours before markets opened. The short-term crisis had been averted. Attention will now turn to how the bank collapsed in the first place.

Inside the weekend from hell for start-up Britain
By: Gareth Corfield

The run on Silicon Valley Bank rocked the UK startup scene to its core. Founders and their venture capital backers traded increasingly panicked calls and messages last week as confidence in what had been the tech lender of choice evaporated.

Jean de Fougerolles, managing partner of London venture capital (VC) firm Ascension Ventures, says: “By Thursday night we felt that SVB US was in big trouble.”

Robert Newry, founder of HR analytics startup Arctic Shore, says he called an emergency board meeting on Friday morning as overnight news painted an all-too-familiar picture to him.

“I’d been through the [dot-com] crash in 2000,” he says, “and then the 2008-09 financial crash. For me, this was something we needed to move quickly on.”

Social media messages were spreading the idea that SVB US parent was about to go under, even though its UK subsidiary was a separate entity operating under UK deposit protection rules.

One highly shared tweet from Texas-based analyst Byrne Hobart, which gained traction on Friday, said: “Silicon Valley Bank was, based on the market value of their assets, technically insolvent last quarter.”

In a controversial move, some British VC executives began telling the companies they were invested in to get their money out of SVB UK.

Ascension Venture’s de Fougerolles says his firm pulled its own deposits out “because we felt that there could be a run on the bank”.

Fellow venture capitalist Check Warner of diversity-focused VC firm Ada Ventures concurs: “We have to kind of act on behalf of our own shareholders and make sure that we preserve capital in situations like this.”

Warner adds that Ada Ventures told the startups it invested in to pull their funds, saying: “We did advise our portfolio companies to be aware of this and consider moving capital into other accounts or making decisions themselves around this.”

Similarly, Arctic Shore’s Newry – who had raised £5.7m in December, a sum he thought put his company on sound footing – tried to withdraw their cash but ran into immediate trouble.

“I thought we would have 48 hours to move our money out,” says Newry, explaining how his recollections of 2008 were of little use in today’s hyper-connected world.

“There was all sorts of stuff going around on Friday, about ‘you won’t be able to get anything over £500,000 out in one go’. And then somebody else said they’d got £250,000. And then somebody said ‘oh we only got £150k’.

“I sat down with my chief financial officer and we were literally trying different sizes of transfers to see what was getting through. But it was apparent by 3 o’clock that nothing was getting through.”

Toby Mather, founder of school tutoring website Lingumi, said he was on a flight on Friday when rumours were spreading. His company had 85pc of its cash deposited in SVB.

Mather says: “From my boarding gate I tried to queue just enough money to leave the account to protect our payroll. I didn’t want to join a total run… but by the time I landed, the bank had gone bust.”

Multiple sources spoke about SVB UK’s “venture debt” financial instruments, where the bank made loans in return for stakes in its startup customers.

For some of those loans, one condition was that the startup had to move its main bank account to SVB.

Over Saturday and Sunday, as Tech Nation and other industry bodies furiously lobbied the Government, many founders were prepared for the worst.

“We knew that something was being done in the background,” says Arctic Shore’s Newry.

“I felt confident that there was a solution, but I didn't know what type of solution would be put forward.”

The industry breathed a collective sigh of relief on Monday morning when the government announced at 7am that HSBC had bought SVB UK for a symbolic £1.

Josh Lachkovic, a tech founder who now runs a marketing consultancy, says: “It was 72 hours of worry, doubt and panic. Come 7am it has very quickly turned around.”

British startup founders echo that feeling of relief and gratitude, with sources keen to praise Chancellor Jeremy Hunt and the Treasury for working through the weekend to rescue SVB UK.

As they look across the Atlantic and see the US response to SVB’s collapse still in motion, some startup founders will be quietly thankful that their companies were based in Britain.