{"id":14842,"date":"2023-03-30T02:57:34","date_gmt":"2023-03-30T09:57:34","guid":{"rendered":"https:\/\/essential.construction\/news\/tech-vendor-risk-raises-vetting-stakes-in-wake-of-svb-crisis\/"},"modified":"2023-03-30T02:57:35","modified_gmt":"2023-03-30T09:57:35","slug":"tech-vendor-risk-raises-vetting-stakes-in-wake-of-svb-crisis","status":"publish","type":"post","link":"https:\/\/essential.construction\/news\/tech-vendor-risk-raises-vetting-stakes-in-wake-of-svb-crisis\/","title":{"rendered":"Tech vendor risk raises vetting stakes in wake of SVB crisis"},"content":{"rendered":"

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As federal authorities review bids for Silicon Valley Bank and a temporary bridge bank tends to daily operations, the tech startup ecosystem remains in limbo.<\/p>\n

The venture capital pipeline, which flowed through SVB to fuel the growth of young companies, was already under stress from inflation and rising interest rates. While downstream impacts on funding and innovation aren\u2019t yet clear, the potential implications are serious enough for companies to reexamine vendor portfolios.<\/p>\n

Short-term disruption introduced wariness into the tech startup ecosphere that will last until there is more confidence in cash flows, Brad Haller, senior partner in the mergers and acquisitions practice at technology consulting firm West Monroe, said in an email.<\/p>\n

\u201cThat delays innovation in the tech economy overall,\u201d Haller said.<\/p>\n

Tech leaders with suppliers who banked with SVB could set aside immediate concerns about the viability of those vendors when federal authorities stepped in to shore up existing deposits shortly after a run forced the bank\u2019s seizure<\/a>. But uncertainty about the stability of tech startups, which are volatile by nature, persists.<\/p>\n

SVB\u2019s support role went beyond banking, according to Ronak Doshi, technology practice partner at IT consulting and research firm Everest Group. It extended to \u201cnetworking events and summits and to product, risk and financial advisors,\u201d he said.<\/p>\n

The institution also added to the pool of available capital. Venture debt, a special type of loan designed for early-stage, high-growth startups that have funding but lack positive cash flow, was central to SVB\u2019s business.<\/p>\n

\u201cThey were a key venture debt funder,\u201d Scott Bickley, practice lead and principal research director focused on vendor management and contract review at Info-Tech Research Group, said. \u201cIt provided tech startups with loans based on the size of their VC funding, which gave them access to funding above and beyond their core equity.\u201d<\/p>\n

SVB\u2019s failure also interrupted lines of credit vital to business operations. This may create short-term problems for some startups, Thomas Phelps, CIO and SVP of corporate strategy at Long Beach, California enterprise software company Laserfiche, said in an interview with CIO Dive.<\/p>\n

Laserfiche contracts with over 100 vendors for software and IT services, although only about a dozen banked with SVB, according to Phelps.<\/p>\n

While those vendors remain secure, there\u2019s still some risk in the larger ecosphere, Phelps said.<\/p>\n

\u201cIT leaders should be aware that they\u2019ve got some runway now,\u201d said Phelps. \u201cBut what\u2019s going to happen to these tech startups if they lose access to those credit lines down the road?\u201d<\/p>\n

Long-term concern<\/strong><\/h3>\n

Disruption in Silicon Valley could reach into the middle of enterprise IT portfolios via third-party providers dependent on the supply chain, Wendy Pfeiffer, CIO at San Jose-based cloud software company Nutanix, said during a Wall Street Journal CIO Network panel<\/a>\u00a0in March.<\/p>\n

\u201cI\u2019m worried about three months from now as some of their key components are potentially compromised,\u201d Pfeiffer said.<\/p>\n

Startups that weathered the initial crisis may have additional exposure as the cost of capital rises and lenders exercise caution.<\/p>\n

\u201cHigher quality companies will come through this, but a lot of innovation could be impacted,\u201d Vineet Jain, CEO and co-founder of Silicon Valley software company Egnyte, told the panel.<\/p>\n

Vendor exposure is always a concern for the enterprise, but third-party risk should now be a more salient issue, according to Forrester. While onboarding innovations from startups will continue, a rigorous vetting process should be the norm, the analyst firm said in a recent blog post<\/a>.<\/p>\n

IT leaders should continue to test promising products with an eye toward mitigating risk by scrutinizing vendor financials and identifying backup suppliers with comparable offerings, Forrester said.<\/p>\n

\u201cSupply chains and hidden dependencies are something I\u2019m always paying attention to,\u201d Jason Conyard, CIO and SVP at Palo Alto, California cloud computing company VMware, told CIO Dive. \u201cBusiness continuity planning isn\u2019t just about earthquakes and hurricanes. It includes supply chain challenges, geopolitical situations and economic uncertainty.\u201d<\/p>\n