SVB has gone broke. Now what?

Silicon Valley Bank, or SVB among friends, was a Silicon Valley institution. Operating in the bay area for decades, it was where many startups got their first business loan, and a lot of tech industry workers had their private banking business there, too. I was a customer there, too, for a while back when I lived in the area.

SVB was famous for being friendly towards startups, and a good many of the ones that grew into viable businesses stayed with the bank, due to the sort of loyalty that is only garnered towards someone who believed in you when few others did. In many ways, SVB was the pre-seed capitalist’s seed capital.

But now, due to a series of unfortunate events and a very rapid bank run, it is no more. So now what?

The Good

The good news is that by and large, banking customers are well-protected. And the Fed has already stepped in to guarantee the customers’ deposits. So far, so good. The next step is hopefully that another, larger bank steps in and buys up SVB, essentially making all customers whole.

The Bad

If we put on the dystopean glasses, we could imagine SVB’s downfall as a catalyst. When the news broke of SVB’s situation, bank shares in the US, and in other countries, plummetted out of fear that this is only the beginning of a series of bank collapses, which was the very thing that started the Financial Crisis in 2008. SVB’s downfall was essentially driven by fear. Yes, the bank had made some bets on bonds that the current financial turmoil drove into a loss, but that happens all the time. It was in many ways the fact that enough customers got nervous and withdrew their deposits, that caused the bank to fail, what is known as a bank run. What if that starts happening on a global scale?

The Realistic

It’s worth noting that the US banking system is no weaker today than it was before SVB’s fall. And with the Fed guaranteeing the deposits of SVB, most of the actual threat is gone. So the worst case scenario above is unlikely. There are other reasons to mourn SVB, though.

First and foremost, the bank was a Silicon Valley institution, and will be missed by both customers and employees.

Second, will we ever see another bank, even one that takes over SVB’s business, that is so friendly to startups? Without funding, that painful initial funding that you need to even build a demo for a VC, many great ideas and promising companies will grind to hault. There’s reason to be hopeful, though, as it was not the bank’s exposure to startups that caused it’s demise, and if anything, SVB has proven that you can build a solid, and protifable, business on banking on startups.

Third, some pundits have already taken the position that this is just another proof that the age of technological development is over, and now it’s back to (old school) business. These are often aging investors who have never warmed to the tech industry, largely because they don’t understand it. But there’s always a risk that others will believe them, even if we’re currently seeing more tech advancement that at any other point in the history of the internet.

Bottom line is that people still want new technology that makes their lives easier, better, or more fun, there are still plenty of startups and scaleups developing the next big thing, meaning there’ll be plenty of money to be made from the sector in years to come. So while the loss of SVB is sad for those of us who spent our fomative years in Silicon Valley, chances are someone else will step in to fill the gap it has left.


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