Dive Brief:
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Though the ed tech sector was among those that could have faced disruption from the collapse of Silicon Valley Bank on Friday, subsequent federal intervention may have headed off the fallout — for now.
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The biggest risk facing ed tech is that if companies working with schools were unable even in the short term to pay their bills, they would have to inform school clients, according to Alex Sarlin, cohost of the EdTech Insiders podcast and senior adviser of product for Cambiar Education, a nonprofit venture design studio that works with entrepreneurs, education leaders and school systems. Resulting service disruptions could have then triggered the breaking of contracts.
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“If the companies were to break payroll for a longer time, that could have had impact on customer success availability or companies’ ability to maintain the software. But none of this came to pass, at least so far,” said Sarlin, a 15-year veteran of the ed tech industry.
Dive Insight:
The Silicon Valley Bank collapse stood to most immediately impact the technology sector and startups, as the bank reportedly served more than half of all U.S. startup companies. Essentially, the bank found itself stretched thin as startups needed to utilize more of their funds in an environment where venture investments had slowed significantly because of interest rate increases made by the U.S. Federal Reserve to slow inflation.
Ultimately, prominent firms like Peter Thiel’s Founders Fund began advising customers to move their funds elsewhere, leading to a run on the bank.
For the education sector, the domino effect from the bank's collapse stretched to teacher pension funds and, as the American Enterprise Institute wrote, to charter school networks. According to AEI, the bank services more than 15% of Massachusetts charter schools, and an inability to access funds could have affected upwards of 9,247 students.
Despite federal intervention, concerns remain as many startups have had to rely on temporary solutions to meet payroll and other obligations until they can access their money — and some remain anxious as to whether all of the funds will return.
In a Sunday episode of EdTech Insiders, guest co-host and ETCH (Ed Tech Career Home) Founder Matt Tower highlighted the speed at which accounts can be created at a new bank and money can be moved in the modern financial world. This, he said, contributes to an environment where a “herd mentality” over, say, a better interest rate can lead to a run like the one that led to SVB’s downfall.
“We’re in a really weird moment right now because none of us have ever seen anything like this. The federal government as of just now is saying, ‘Don’t panic. Don’t let this be a contagious thing. Don’t pull your money out of every regional bank,’” Sarlin said during the episode. Whether it works to limit other regional bank runs remains to be seen, he said, though he noted a second regional financial institution, Signature Bank, had also collapsed over the weekend.
