SVB Backstop Fallout: IT Solution Providers Breathe ‘Sigh Of Relief’

‘Many of our customers are part of the startup community that had assets at SVB,’ says Pinnacle Technology Partners Managing Partner Ethan Simmons. ‘We knew that if something didn’t happen going into Monday we would have customers that would have had issues paying bills and making payroll. There were a lot of unknowns going into the weekend. I’m breathing a sigh of relief this morning.’


Pinnacle Technology Partners’ Ethan Simmons

Ethan Simmons, managing partner of Amazon Web Services (AWS) life sciences services superstar Pinnacle Technology Partners, breathed a “sigh of relief” after federal regulators stepped in to protect all depositors at Silicon Valley Bank (SVB).

“Many of our customers are part of the startup community that had assets at SVB,” he said. “We knew that if something didn’t happen going into Monday we would have customers that would have had issues paying bills and making payroll. There were a lot of unknowns going into the weekend. I’m breathing a sigh of relief this morning. I’m sure there were a lot of channel partners out there focused on the innovation economy that would have had potential issues with customers who could not pay their bills. It could have been disastrous.”

[Related: AWS Life Sciences Star PTP: ‘Everyone’ Is Moving ‘Science Into AWS’]

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If government regulators did not step in and ensure depositors would be made whole, Simmons was prepared to look closely at what customers of his had exposure to SVB. “I was prepared to start looking at what customers we needed to have a conversation with regard to where they stood to make payments,” he said.

Given the widespread use of SVB in the tech sector, the innovation technology economy would have taken a hit that could have taken years to recover from if the government had not stepped in to protect depositors, said Simmons, a channel veteran who has built six-year-old Pinnacle Technology Partners, Norwood, Mass, into a prominent life sciences cloud consultancy that has delivered breakthrough solutions to life sciences startups.

“If the government didn’t step in, it would have stifled the innovation economy,” Simmons said. “It would have impacted future rounds of investment innovation.”

Allen Falcon, the founder and CEO of cloud computing specialist Cumulus Global, No. 84 on the 2022 CRN Fast Growth list, Westborough, Mass., said he is also glad regulators stepped in to prevent companies that had deposits in SVB.

“It’s a good thing for the innovation economy that the government is protecting the victims of Silicon Valley Bank’s mismanagement without using taxpayer money,” he said. “Hopefully Congress will reassess banking regulations to stop this from happening again.”

In a joint statement on Sunday, Secretary of the Treasury Janet Yellen, Federal Reserve Board Chair Jerome Powell and Federal Deposit Insurance Corp. Chairman Martin Gruenberg announced that it would fully protect all depositors of SVB, California, and Signature Bank, New York, with no losses borne by taxpayers. Depositors will have access to all of their money starting today.

“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” the joint statement read. “This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”

Even with the government backstop, solution providers predicted that as a result of the sudden collapse of SVB and Signature Bank, there will be ripple effects that will have a deep impact on how the channel conducts business.

Given the fallout from the bank failures, Pinnacle Technology Partners will now go beyond credit checks to look at what banks its customers are doing business with, said Simmons. “We’ll have to look internally what is our exposure to customers with a concentration at a certain bank,” he said. “That was something we never really considered before this.”

Simmons believes there will probably be another layer of financial inspection when solution providers go for additional credit line or bank loan. “I expect now I’ll be asked by our creditors where are your customers doing their banking,” he said. “That is something I’ve never been asked before.”

Falcon predicted that the SVB fallout will have long-term implications for how partners do banking and conduct business. He called the SVB crisis a “wake-up call” for all solution providers to carefully look at the financial viability of companies they do business with particularly security software startup companies.

“The message to the channel is that vendor evaluations have to go beyond the technology and the structure of the partner program and MDF funds to the business plan and the financial viability of a company,” he said. “If you don’t do that due diligence and make sure your strategic vendors have a clear and confident path to profitability, you are putting your business at risk.”

The SVB crisis once again puts the spotlight on companies that are focused on valuations rather than profitability with sound financial footing, said Falcon.

In a post on LinkedIn, Marc Umstead, president of Plus One Technology, a Pottstown, Pa.-based MSP, said the SVB failure is a “stark reminder” of the importance of risk management for MSPs.

“As MSPs, we have a critical role to play in helping our clients develop and implement effective risk management strategies,” said Umstead in the LinkedIn post. “This includes working closely with them to identify potential risks and develop plans to mitigate them. It also involves ensuring that they have the right technology solutions in place to help them manage and monitor their risks on an ongoing basis.”

In an interview with CRN, Umstead said that while his company’s customers haven’t told him about any exposure to SVB, his team is reaching out to talk to customers about risk management.

“Trying to put them (customers) in the position to manage their risk – when they don’t even know what it is – is hard,” he said. “So we have to do a better job. We’re going through the process now of filling out risk register documents for every single one of our clients that we don’t have them for. It’s just going back and just saying, ‘Look, these are all the things that are of a risk as it pertains to technology to your business. We’re telling you about them. And you’re opting to either do something or not do something about them.’”

Even for MSPs and MSP customers without any relationship to SVB, Umstead warns to be wary of phishing scams trying to capitalize on the news. Vendors with exposure to SVB have started sending out emails with updated banking instructions. Everyone should call numbers they have on file to verify these emails are legitimate, Umstead said. “Just verify all those things the old-fashioned way,” he said.

Umstead said one big area of focus for MSPs should be looking at the organizational structure to see who is most vulnerable to be targeted in a phishing scam.

Ultimately, Umstead said the rapid pace of technology has brought more risk to MSPs and their clients. “Now you can just log on to the website and click a couple buttons and all of your money's out of that bank and in a minute,” he said. “Everything just moves faster now.”

In the specific case of Silicon Valley Bank, Umstead said on LinkedIn, it is clear that there were “shortcomings” in their risk management practices. “But this is not an isolated incident, and it serves as a reminder to all businesses of the importance of taking a proactive approach to risk management,” he said. “By doing so, businesses can better protect themselves against potential disruptions and ensure that they are well-positioned to succeed.”

In retrospect, it was clear that it was unwise to have so much of the technology innovation economy tied up in one bank, said Simmons. He said the crisis reminded him of the ripple effects that impacted the channel during the financial meltdown of 2008.

“Even though it was a relatively small bank it had a large impact on the tech economy,” he said. “I am glad the government stepped in and that taxpayers aren’t footing the bill. But we have got to figure out a way to stop making the same mistakes over and over again.”