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Dive Brief:
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Although the ed-tech sector was among those likely to face disruption from the collapse of a Silicon Valley bank on Friday, subsequent federal interventions may be causing the downturn — for the time being.
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EdTech Insiders podcast co-founder and senior product consultant Alex Sarlin said the biggest risk for edtech was to notify school customers if companies that work with schools can’t pay their bills even in the short term. Cambiar Education, a non-profit venture design studio that works with entrepreneurs, educational leaders and school systems. As a result, service disruptions can lead to contract breakdowns.
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“If companies break payroll for a longer period of time, that could impact the delivery of customer success or the ability of companies to maintain the software. But none of that has happened, at least not yet,” said Sarlin, a 15-year veteran of the edtech industry.
Dive Insight:
The collapse of Silicon Valley Bank had a major impact on the technology sector and startups that the bank had been serving. More than half of all America’s startup companies. Essentially, the bank itself has found itself stretched thin in an area where startups want to use their money more because of interest rate hikes by the US Federal Reserve to tame inflation.
Eventually, well-known firms like Peter Thiel’s Founders Fund began advising clients to relocate, leading to a run on the bank.
For the education sector, the domino effect from the bank failure has spread Teachers’ Pension Fund and, According to the American Enterprise Institute, to charter school networks. According to AEI, more than 15% of Massachusetts charter schools and 9,247 students were affected by the failure to access the bank’s services.
Despite federal intervention, Concerns remain Many startups have had to rely on temporary solutions to meet payroll and other obligations until they get their money back — and some worry whether all the money will ever be returned.
as if Sunday’s edtech interior, guest contributor and ETCH (Ed Tech Career Home) founder Matt Tower highlighted the speed with which new bank accounts can be created and money can be moved in the modern financial world. This, he said, could lead to a run for better interest rates in an environment where “herd mentality” has passed, like the one that brought down SVB.
“We are in an amazing time because none of us have ever seen anything like this. The federal government is still saying ‘don’t panic’. Don’t let this become contagious. Don’t withdraw your money from every regional bank,” said Sarlin during the session. Although it remains to be seen whether it will work to limit other regional bank runs, the second regional financial institution, Firma Bank, also collapsed over the weekend.
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