Financial crisis hits close to home

Thoughts on SVB, the collapse, the rescue, the context

The Silicon Valley Bank Blame Game

I was on vacation last week, but I had Internet access, and I confess that I spent the last weekend of my vacation being utterly distracted by the lightning-fast implosion of Silicon Valley Bank.

Yes, BlogHer banked with SVB. Other start-ups with which I have a relationship bank with SVB. Big-ass public companies where I know leadership do some banking with SVB. An entrepreneurial friend on the same charter cruise as I was on was waiting to figure out what was happening with their money at SVB.

I think it’s important to know that before any of this went down, SVB was utterly embedded in the entire Silicon Valley start-up community. Someone I know said they thought that it was the prestige associated with SVB that made every start-up want to bank there, and certainly if you were in the rarefied position of having external funding, your investors probably encouraged you to do so. But there was more to it than “prestige.” SVB was created and made to work with start-ups. Their offerings, services, terms, and just plain old customer-facing account reps made you feel like they knew you; they got you; they were here for you; they were made for you. So, while it’s easy to lambaste SVB leadership, in many backchannels I’m in, people are saying, “I really liked my contacts at SVB.” I did too.

Let’s get to that easy lambasting. Sounds like SBV leadership made a bad bet on long-term bonds and waited too long to get themselves out of the mess rising interest rates created for them. They didn’t prioritize replacing a Chief Risk Officer role that, theoretically, would have been focused on mitigating risk during what are clearly highly volatile and unprecedented times, in more ways than one. They did hire the former CFO from Lehman Brothers to be their CFO (so you’d think there was at least one guy on that team who knew how quickly things could collapse). They had terrible communication that did nothing to build confidence. Several officers make stock sales that very well could have been part of a pre-scheduled regular stock sale pattern they set up and, therefore, totally aboveboard. Or not…time will tell.

And all of the above is even more galling when you know that the CEO of SVB lobbied hard for regional banks (like SVB) to be exempt from banking regulations that bigger banks are subject to…regulations that could possibly have forestalled exactly the over-leveraged situation SVB found itself in. The lobbying worked on the Trump administration, and some regulations were rolled back.

The bank’s problems didn’t happen overnight, but it certainly seems like a cohort of VCs basically catalyzed a run on the bank that resulted in $42B in withdrawals being put in motion over one <48-hour period. And yes, I think they knew they were triggering a run and that there didn’t have to be a run.

I could get super-conspiracy theory about it and say that for some techno-libertarian bro-dude super-elite types, SVB collapsing wouldn’t make much of a dent in their personal fortunes but would weaken the strength and leverage of founders and workers and even speed up the much-foretold recession that refuses to line up as neatly as predicted. All of which would make people more desperate and more vulnerable to the privatization these Masters of the Universe love so much. The immediate appearance of an anonymous “SVB DAO” site and Twitter handle pushing for literal privatization of SVB’s assets into this entirely unregulated Web 3.0 instrument, asking for founder info and pledges without divulging so much as one of the “100 investors, entrepreneurs, etc.” who are supposed to be behind it, didn’t exactly kill my theories.

Instead, the government stepped up, moved quickly, and (without an immediate buyer) guaranteed deposits, even above the $250K level the FDIC insures. At the same time, they removed SVB leadership, and they are NOT bailing out SVB shareholders. They are ensuring people can access the cash they had in that bank.

It may feel like a tech-elite bailout, but there is much more nuance here. This government action means Etsy sellers will get their payments. That start-ups down to the smallest size can make payroll. It’s more than tech companies. And by the way, “tech” is not just about massive social/internet platforms. Don’t forget medtech and healthtech and climatetech, among other worthy innovation pursuits.

People are also railing about this “bail-out” in relation to other quite different potential programs that are at risk for quite different potential reasons, for example drawing comparisons between the Fed making sure companies don’t lose their money on deposit, and the fact that student loan forgiveness is being challenged in court. As it so happens, I am extremely pro-student loan forgiveness. But it’s a different situation, and my support is for a different reason than being pro-guaranteeing deposits.

It’s true that if all these companies lost all their money and a great percentage needed to shutter, it would, by extension, hurt the investors who initially funded them, but I am not crying for them too much, since VC investing is a long-term play that builds significant failure rates into their model. It would be catastrophe for the start-ups, their employees, and vendors. It would be less so for the investors.

Even with government intervention, this is a destabilizing event that isn’t over yet. Rumors abound. A run on another similar bank is not out of the realm of possibility. The GOP is accusing SVB of causing their problems because of wokeness…which would be funny if it wasn’t so infuriating. This whole sequence of events illustrates exactly how emotional money and markets are. Things are stable, are valuable, are even the best in the business because we say they are. Until we don’t.

And what I’m most wary of is that these dramatic events may ultimately decelerate innovation…especially from underrepresented founders who already innovate on a razor’s edge financially.

Some good info sources:

Excellent Washington Post FAQ

Amanda Hetler SVB primer on TechTarget

Paul Krugman (New York Times) is a bit more cynical

Matt Levine (Bloomberg Business Week) on SVB

What else is going on?

My most recent episode of The Op-Ed Page podcast features an interview with my friend Joanna Bloor, about her new book: Tales of Potential: The Cinderalla Story You Haven’t Heard. Joanna will make you think differently about Cinderella, yes, but also about how Current You can focus more on the value of Future You rather than lean on Past You to do all the work. Sound confusing but intriguing? It is, listen in!

I continue to post #3MinuteBookReview videos on TikTok, and I especially want to point you to this review of David Gelles’s important book, The Man Who Broke Capitalism, which is super relevant given the financial chaos and ongoing layoff contagion:

@elisacp @elisacp ♬ original sound - ElisaCP

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Until next time, please leave a comment and let me know your thoughts on any or all of the above. This is basically my blog now! And as always, I appreciate a share of this newsletter or my podcast.

If I can help you break through the things that are keeping you stuck, set up your first introductory 30-minute consult for free by booking it in my Calendly. And you can always check out my new LinkedIn Learning Course, Telling Stories That Stick, a 57-minute course on crafting your stories for different audiences (media, investors, prospects, hiring managers) and making sure those stories stick…and convey exactly what you hope to convey.