This time the money was not in Joe’s house but in Fred’s startup, or Jill’s tech company. And it was mainly deposited by VCs who are particularly financially savvy and also tend to act in herds.
Headlining news this past week is not the Bailey Savings and Loan but the Silicon Valley Bank. Like the Bailey Savings and Loan, it catered to its own community, in this case, a tight-knit crowd of genius startups, hard-driving entrepreneurs, and aggressive/competitive VCs. They
were one happy family when things were going well, and a finger-pointing family when things took a wrong turn.
The Mr. Potter in the SVB story could be lots of different actors. Some say SVB collapsed quickly because VCs such as Peter Theil and other prominent voices publically told the community to get the hell out of
the bank. CEO Glen Becker, even while he was urging clients to remain calm, reportedly sold $3.6 billion in SVB stock. One colleague even suggested Eilzabeth Warren and her colleagues were the real villains for having a sense of outrage and a desire for tighter regulation.
Some have told me SVB’s failure proves crypto-investors point, that centralized banking is doomed to fail. (The price of Bitcoin these last few days is rising.) Others tell me that SVB should have been a federally regulated bank, such as Citibank or Bank of America, from the get-go. Still, others say it was the perfect storm of interest
rates, long-term bonds, and a lack of loan activity.
No matter who’s right or wrong, the irony is not lost that the Feds and the FDIC, who many in the SVB investment community view with distaste over their zeal to regulate and oversee, ultimately solved what could have been an economy-shattering problem.
Andrew Ross Sorkin, the NY Times financial correspondent, commented on Twitter:
It is a bailout. Not like 2008. But it is a bailout of the venture capital community + their portfolio companies (their investments). That’s the depositor base of SVB. It is the right thing to do in the moment, but there will be ramifications + new regs. VCs should say thank you.
VCs are not known for saying thank you. And you have to believe that a modicum of calm and a little less knee-jerk by the bank’s chummy clientele might have averted the entire fiasco. But that’s second-day quarterbacking. We’ll be watching to see how this episode impacts the entire tech sector. But from where I sit, this is yet another arrow in the back of Silicon
Valley’s pioneers.
Interesting sidenote? At CES this past January we featured Vartika Ambwani, VP and Director of
Fintech at Silicon Valley Bank. She spoke hopefully about myriad alternatives to traditional banking. Will this bank failure derail those alternatives, or will they come to pass anyway? |