Its so funny until you realize your seed-round investment in a friends company used SVB.
Gonna be quite a show, this.
Gonna be quite a show, this.
Not as extreme maybe, and less fraud got us here, but $assets < $deposits
whereas an exchange shouldn't have a position at all
and a hedge fund normally doesn't allow withdrawals at all (without vast notice)
>> As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits.
Two things got SVB down. First, a rapid change in interest rate got their assets repriced down. It did not need to be fatal, this happens to all banks when interest rates rise quickly.
Second, its customers did a ran and went to pull their money. If all depositors of the BoA or Chase pull money out, those banks will collapse, too. This is highly unlikely for the BoA -- if folks start saying that BoA will collapse most depositors would shrug it off; the diversity of its base will make a run highly unlikely.
But as SVB was a much smaller bank and had a lot of similar customers (startups advised by similar VCs) the ran was seen as plausible at which point it was over -- customers pulled enough money to kill the bank. This is the price we pay for the flexibility of the current banking system that allows people to get loans and free checking accounts. My 2c.
The only job for these execs was to know which way the wind is blowing and they showed themselves to be not much better than every other rabid fool that bought GME etc. thinking things would never change and bull runs and low rates would last forever.
What I meant by VCs have a tiny fraction of their fund as cash is that cash is held by LPs and is called upon only when the VC funds a startup. When a VC raises a $1B fund they don’t get the money, they get commitment that the money will be available. So this means that this failure shouldn’t affect VCs ability to invest in the future as most LPs didn’t hold their money in SVB.
[1] https://s201.q4cdn.com/589201576/files/doc_downloads/2023/03...
The majority of VCs use this product simply to help smooth working capital needs and to be able to make new investments without needing to call capital sooner than LPs would prefer (also to juice IRRs), but there's almost certainly some minority that have basically taken an advance on their entire fund size, or at least a large portion of it. And now any of that cash still held at SVB is obviously at risk.
> most LPs didn’t hold their money in SVB.
At the very step of funding, do LPs wire the money to a single bank (SVB) and then the VC dispurses it to the startup in one lump sum? Or do the LBs wire the money to the startup's bank account (at SVB)?
I've heard that UHNW individuals also individually banked with SVB. Wouldn't they have their money at SVB?
Also, wouldn't the VC's long-term relationship w/ SVB give them (the VCs and the startup they're funding) much more leeway with what the bank considers acceptable behavior (ie not money laundering and worth filing an SAR over)? Now that those relationships are gone and the VC has to go through the front door and deal with, say, BankOfAmerica or Chase like the rest of us chumps; doesn't the loss of that relationship materially hurt the broader environment?
Money there to to be spent over the next six months is now not available.
Payroll in Silicon Valley is going to be a mess this week.
Companies that lend to startups short term are going to have a busy time.
Except the last couple years have been bonkers with little revenue / spending alignment during fundraising. Early stage burns are above that level, which makes the situation worse for current crop of co's. Ouch and good luck :(
Update: yes, seems like the insurance part is pretty quick
https://twitter.com/MMikeMMa/status/1634245929481175040/phot...
I've seen several versions of this sentiment here. What are people basing it on? I don't know much at all about the situation.
first HN said there was no problem
then HN said everyone will get their money back
what next?
HN is full of dreamers, the kind who wander into traffic
But if you're curious, and want a layman no-jargon version the press release from the FDIC is pretty good.
I mean this in no uncertain terms. HN users know nothing about this and are regurgitating pure rubbish over and over again in this thread. If you're concerned, don't even trust me, but go read the press release. CA put out one too.