Silicon Valley Bank almost instantly collapsed, leaving the American tech community in disbelief and wondering how one of its most valuable institutions could disappear so swiftly while being spurned by the corporations who needed it most.
The one-track emphasis of SVB, like many other specialist banks around the world, may have been its downfall. SVB was a highly specialized institution with unique quirks.
“I am really furious. Also sad and afraid. But keep in mind that we did this as a group “Nicole Glaros, a startup business owner tweeted. She said with a shortened obscenity, “If you did the right thing and kept your money at SVB, you’re getting fed. She continued, “If you moved your money in the incorrect direction, you feed thousands of startups and people you’ve never met.
SVB, a bank that was established in the 1980s, asserted that “almost half” of American technology and life science startups banked with them for a variety of services, mostly to park cash given to them by their venture capitalist investors to function.
Michael Moritz, a partner at Sequoia Capital, a major player in venture capital, stated in the Financial Times that it was difficult, if not impossible, for a startup to gain a partnership with a big, established bank before SVB sprung to life.
The establishment banks “bypassed or disregarded” California entrepreneurs, and “in a weird manner, SVB has paid a price for its allegiance,” the author claimed.
Similar to the Sunday demise of the cryptocurrency-friendly Signature Bank, the collapse of SVB did not follow the same script as the 2008 financial disaster, which was caused by issues that were first only understood by professionals.
Instead, SVB’s implosion followed a far more traditional pattern, evoking memories of the Great Depression almost a century ago, when worried depositors waited in line at failed US banks in a desperate attempt to recover money that had already been lost.
In one instance, the depositors were tech entrepreneurs who made the transaction in response to frantic requests from coworkers or financial supporters to swiftly close their accounts.
“On Thursday… I suddenly saw very unambiguous emails, printed in capital letters, coming from my board of directors: WITHDRAW YOUR MONEY IMMEDIATELY!”, stated Clement Cazalot, CEO of startup Machinery Partner.
The most influential venture capital firms in San Francisco and Silicon Valley, including Peter Thiel’s Founders Fund, Union Square Ventures, and Coatue Management, reportedly made the calls, according to sources.
The panic started after SVB made a disastrous presentation intended to convince clients that everything at the bank was under control, despite the fact that SVB was raising money as a result of some poor investment choices.
“I think when the forensics on this are done, you’re going to find out that maybe as few as 20 individuals… chose on Wednesday or Thursday morning to go into a war room mentality,” said Scott Galloway, a business professor at New York University who additionally works with startups.
And you pull your money out when your venture capitalist calls and instructs you to, he explained on the Pivot podcast from New York Magazine.
Just a few months prior, one of the largest names in the cryptocurrency sector, FTX, collapsed, however the reasons there were entirely different and were allegedly related to fraud and other alleged crimes by its founders.
But, FTX’s demise came quickly and was the catalyst for the failure of several cryptocurrency businesses as well as runs at two other banks, Signature and Silvergate, who had refocused their own operations on alternative currencies.
Although having diverse situations, Dan Ives, an analyst at Wedbush, claimed that SVB and those banks had all exposed themselves to risk by focusing their operations on a single class of riskier assets.
In severe circumstances, a bank’s stability might shift drastically, especially if customers worry and start to think alike.
Ives predicted that the consequences of this would be felt in Silicon Valley for the ensuing ten years.