How the SVB Crash Revealed Cracks in Silicon Valley | Technology
Olivia Wise / The Examiner
The Silicon Valley Bank run wasn’t just a financial scare for entrepreneur Punit Singh Soni. For CEO and founder of Redwood City AI startup Suki, last weekend’s bank run also revealed the Silicon Valley executives he could rely on — and those he couldn’t.
“This crisis has really shown who the real leaders are and who aren’t — who spoke and who held the talk,” Soni told The Examiner.
When her team was looking for funds to do payroll the following week, Soni said, “There were VCs who called me and said, ‘I’m going to open my personal wallet to make sure there are money available,'” he said. .
The SVB crash saw panicked startups – stunned that their operating funds were suddenly trapped in a failing bank – faced with possible financial chaos with no money to pay their employees and other expenses.
The federal government finally came to the rescue with an intervention over the weekend. But the 48 hours of uncertainty have exposed serious cracks in a close-knit tech ecosystem that has thrived for 40 years, with Silicon Valley Bank playing a vital role.
Soni’s initial reaction to the news that SVB was posting a loss and raising more capital was typical of what many in the tech industry thought: it was going to be bad for the bank’s share price, but it wasn’t. is not a fatal blow for SVB.
Suki’s CEO, Punit Soni, speaks at a company meeting.
Courtesy of Suki
“What I didn’t expect is that people are going to lose confidence in themselves,” Soni said.
This loss of trust has mostly manifested in the form of text messages and social media posts. Michele Alt of the Klaros Group called what happened “the first Twitter-induced bank panic in the history of deposit insurance funds.”
But Brex CEO Henrique Dubugras said the panic wasn’t just spreading on Twitter, saying “there was a lot of private texting, private WhatsApp and private connections. There was an awful lot of texting going on. .
Soni said she received a call from a prominent VC who told her, “These memos have come out and people are pulling money out of their banks, and you need to think about what you need to do.”
“My first reaction was, ‘Well, this is a random new glitch,'” he said. “The second reaction was, ‘Well, that’s crazy. The messages were “from a group of VCs who said to withdraw your money. He will be executed. Blah, blah, blah.”
A classic bank run had begun.
Todd Baker, a senior fellow at the Richman Center for Business, Law and Public Policy, said it’s usually hard to stop them once they start because they “adopt their own logic.”
“As long as no depositor jumps in first to withdraw deposits, there is no problem, but there is a big problem as soon as someone breaks ranks,” he told The Examiner .
Suki CEO Punit Soni said SVB’s problems were worse than he initially thought. “What I didn’t expect is that people are going to lose confidence in themselves.”
But by Thursday night, it was clear that big players in Silicon Valley and the tech and venture capital worlds were breaking ranks. There has been some debate about how VCs and tech startups reacted to the collapse of Silicon Valley Bank.
It was a tricky and complicated situation, say some startup founders and industry experts.
“I want to choose my words carefully,” Michele Alt said. “A bank run is not illogical behavior on the part of each individual runner. If you know your money is at risk or you believe your money is at risk, you will act to move it to a safer place. This is the opposite of the criticism that they were not acting in their best interest or that of their clients.
Soni said many VCs and startups face a problem. “I can’t blame them” for saying, “It’s my fiduciary duty to take care of my business; then I can think of the community.
“It’s a typical prisoner’s dilemma,” Soni said.
Questions have also emerged over how SVB management has handled the crisis, particularly after it was reported that CEO Greg Becker had sold nearly $30 million of his stock over the past two years.
But for other industry observers, what some VCs did amounted to recklessly abandoning a core part of the tech ecosystem, in what Baker called a “first and foremost attitude.”
And that act of breaking ranks hurt what Eyal Lifshitz, CEO and co-founder of fintech startup BlueVine, described as a trusted partner with “a truly unique culture.”
“They’re really, really nice, super nice people, very easy to work with,” he told The Examiner. “They’ve developed a no—– type culture and it really shows when you work with them. And frankly I feel bad. The people I always interacted with there are amazing human beings as well as being super smart and talented.
For Soni, whose company develops AI tools for doctors and medical professionals, running for SVB meant unexpectedly and suddenly facing banking and financial problems.
“That’s not what I thought I needed to know,” he said. “You know, I’m just working and you’re asking your finance team to do the work. But by the time we figured out what the exposure was – and we realized the exposure was fundamentally important – it was too late.
Soni and her team only had a few hours to figure out where they would get the funds to pay employees for the coming week. Soni said he reached out to members of the VC community – and got disappointing responses. He said there were investors who said to him, “Oh, we’re so sorry. It’s a big problem. But you know, we can’t give you money because even our money is stuck in SVB.
“And I’m like, ‘Your money might be stuck in SVB, but if, as an entrepreneur, I can check my bank account and withdraw money to fund my own business, I’m sure you, who’s been in venture capital for decades, probably has some money somewhere you can use.
Plus, they know “the FDIC will back it up and you’ll get your money back.”
Some industry watchers have accused venture capitalists of recklessly abandoning a core part of the tech industry ecosystem with the race for Silicon Valley Bank.
Benjamin Fanjoy/Associated Press
The good news was that there were VCs ready to help. “For all the people who made all the drama or noise on Twitter, there were good, solid, high-quality investors stepping up.”
One of them was San Francisco firm First Round Capital, he said. “I didn’t call them,” Soni said. “They proactively called me and said, ‘We’re setting up a four-person fund just to help with payroll. Let us know if you need it. ‘” Another venture capital firm that offered to help Venrock in Palo Alto, he said.
“They stepped in and said, ‘We’ll make this happen,'” he said. “Some of the people who made this possible did it with personal funds. Like most, these guys also had their money in SVB. So people personally opened their wallets.
Soni said he hopes the SVB crisis will lead to deep soul-searching in Silicon Valley and the rest of tech. The bank rush also prompted him and his team to rethink the way they manage their finances.
“A lot of people say, ‘Well, why weren’t you diverse? “, He said. “We are entrepreneurs. You start a business. You think someone is going to spend time trying to find several banks to invest money in or this idea that there has exposure to risk because they have invested in certain securities.
The way SVB’s collapse unfolded also underscored the importance of communication in Silicon Valley and the entire tech ecosystem, he said. Soni spoke of the need to have “a common platform where we can communicate” in times of uncertainty, “instead of all these people on rooftops shouting, ‘Take your money!'”
“If we all got together and said, ‘This is an important partner in this ecosystem. We will leave things as they are and calm down and wait 24-48 hours. We wouldn’t have that problem now.
In a way, he’s lucky, Soni said. “I’m a well-funded company that’s been around for several years and I’ll probably survive this.”
But, he asked, what about the “many very small businesses” that might be more vulnerable to such a crisis?
“I usually tell people that building a startup is like being on a treadmill,” Soni said. “Someone keeps hitting you every few minutes and if you’re still up you’ll win.”
This is the story of Suki, which he started in 2017. “When we started building a business, who knew we would have a pandemic and then the economic downturn,” he said. “Then you have this drama. So, you know, but we live to fight another day.