Why Silicon Valley Bank collapsed, and why it matters
Darius Rafieyan, Mattathias Schwartz
Sat, March 25, 2023
Police officers outside SVB's headquarters in Santa Clara, California on Friday.
An anonymous Silicon Valley Bank employee gave Insider a firsthand view of the bank's collapse.
The intensity meant two or three hours of sleep each night. Some workers forgot to eat.
Rank-and-file employees felt that management did a "dismal" job of keeping them in the loop.
Over the last two weeks, Insider has conducted a series of interviews with an employee of Silicon Valley Bank who gave a firsthand account of the bank's March 10 implosion as experienced by rank-and-file staff. Their identity is known to Insider, which agreed to keep them anonymous due to the sensitivity of client relationships. Their account has been edited for length and clarity.
The messages I was getting that first weekend, it was like being at your own wake. "You were so wonderful to work with." "SVB has been such a great pillar of support." These are the kinds of things people say about you when you're no longer here!
Now, we've gone through that moment, and we're kind of resurrected. The best-case outcome, which I think is unlikely given the brand's tarnishing, is that we operate as a wholly owned subsidiary. The more realistic hope is that we get sold off. The bidding has been opened up to non-bank institutions. It closed on Friday.
At first, the communication from management was dismal, both to our clients, and to us. We didn't know what was going to happen to us. We didn't know what we could say to clients, yet we had every client under the sun calling us. All wires had stopped. Nobody could get any money out. We were on the front line.
Now, my boss has said that top management will communicate with us more directly. My boss is part of what's become known as the "war room" at the Palo Alto, California office. That is the only office that's remained open during all this. It's where the department heads are sitting down with the folks from the Federal Deposit Insurance Corporation, or FDIC, and trying to figure everything out. The head of product, the head of credit, and so on are meeting with them.
In fact, we had no idea in advance that any of this was going to happen. My team learned that the FDIC had taken us over during an internal-team call, when it was on the news. We didn't get an internal email about it from management until a few minutes later. We had no way to get ourselves ready — they kept us in the dark. So there was shock, and some tears, as well.
During the first few days, the greatest frustration on our team was that no one was telling us what we could tell our clients. It was never, "you're not telling me what's going to happen to me, personally." The people who were actually working at SVB weren't asking about their own homes, or their kids' college educations, even though those things were at risk as well. Until today, everybody's focus has been the clients. Selfish behavior, during that first week, did not exist. It was chaos. I ate one bagel each day, and slept for maybe two or three hours each night.
The weekend after the FDIC takeover was crazy. Originally there was a list of 13 VC firms, which said they were willing to sign a statement saying that they supported us. We needed to grow that number. We spent a whole weekend on the phone, email, chat, any sort of way to get in touch with the VC firms, partners of the VC firms, operating partners, CFOs, anybody we could to try and get them to rally. I think the number is at 630 supporters as of today. It's been amazing to see the VCs themselves rally and create this awareness. Many folks had our back from the beginning. Once they knew their money was safe again, other folks changed their tune.
I wouldn't even say that they were rallying for SVB. It was for an institution like SVB to exist, for the sake of the innovation economy. Our goal that first weekend was to get as many clients as we could on board. Because if they're on board for support, that will help send a signal to the Fed or the FDIC to step in in some capacity. And they did — it worked. On Sunday, when the Fed said, "We'll make depositors whole," that was a huge sigh of relief for VCs trying to make payroll. We'd had so many clients tell us that they might have to shut down or cover payroll by borrowing with a personal guarantee.
You would expect irate clients, because their money is stuck and their operations are stuck. This is their lifeblood. Yet, I have not had a single frustrated or irate call with a customer. Every call I've been taken has been full of empathy and support. It's been calm. And that makes you feel even shittier, because if someone is angry at you and being a jerk, you can think, "Whatever, there's only so much I can do." But everybody was so empathetic, so I was like "I really, really want to help you. I just don't know what I can do." My team has called, emailed, and texted hundreds of clients. It hasn't been complaints so much as questions — but not irate questions.
The secret sauce of SVB has always been the people. Now I am hearing from former customers who rushed to open up accounts at Wells Fargo, Chase, JP Morgan, you name it, saying that the beginning was great in opening the accounts. But now it's been a few days, and they don't have a person to call. They have to go through the 800 number. These founders are not used to that. They've been getting the red-carpet, silver-platter treatment at SVB. Whether you've raised $5 million or you've raised $500 million, you have a dedicated person. That doesn't exist in traditional banking. The founders are learning that now — they don't have someone to go to for their wants and their needs.
Last weekend, I was finally able to get a good night's sleep. I ate some actual food. I went to an event and ate a full lunch — falafel, chicken shawarma. I'd been eating nothing but bagels for days. No one was eating those first few days — higher-ups had to remind us to keep eating.
I've tried to ignore the personal side of this, but we've lost a lot. Many employees get more than 50% of their salaries in equity — SVB stock — every year. My equity in the few years I've been here used to be worth more than $1 million. Now it's gone to zero. So here you have a whole group of people who lost everything personally, in terms of equity, and still the focus was, "Can my client make payroll?" That's the culture here. On an internal call, someone said that if we can stop the bleeding and the deposit outflow, that will be the greatest story ever told. It will be the people who worked here that saved it — this should be a Harvard Business School case study in customer service. I have never seen an organization come together like this. There is an internal poster, similar to The Avengers, except it has all the faces of leadership on it.
It's been said that we're too cozy with our customers. That's not how I see it. What's true is that a certain amount of our business involves investor support — having trust and faith in them. It is something that you build up over decades, working with someone through the good and the bad, having those tough conversations. The nature of our business is lending based on the customer's ability to raise the next round. That's not cozying up with the investors; it's getting to know your customers and their companies so you can know who leans in when it matters.
First Republic got a capital injection, Signature sold, Credit Suisse sold. And here we are, the people who started it. We still don't have someone. We're still in this state of uncertainty.
This week, for the first time, I went back into a physical SVB office. I just wanted to be with my colleagues. There were tears and hugs. I'd hoped there would be more laughter. There is still a lot of personal apprehension and stress for us. People are just now starting to think of themselves and their futures. The adrenaline rush has worn off now, and the reality is starting to sink in.
Jessica Washington
Sat, March 25, 2023
3/25/2023
Everyone is talking about the collapse of Silicon Valley Bank and for good reason. Silicon Valley Bank, also known as SVB, is the largest bank to fail since the 2008 financial crash (which most of you will remember didn’t go so well).
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New reporting into mismanagement at the bank is raising some serious concerns. But while it’s wise to have a healthy dose of curiosity about why an outwardly stable bank went under in a matter of days, it’s not time to panic just yet.
Why This isn’t The 2008 Crash
Most of SVB’s clients weren’t like you and me (i.e., ordinary people with modest checking and savings accounts). The company primarily did banking services to big tech start-ups and venture capitalist-backed firms.
The most important thing to know about SVB is that while it’s definitely a large bank, it’s not, say, JP Morgan Chase large. SVB had roughly $209 billion in assets before its collapse, which accounted for less than 1 percent of all banking assets in the U.S. For comparison, JP Morgan Chase has more than $3 trillion in assets.
Because of its size, most experts aren’t predicting that SVB’s failure will lead to a widespread banking collapse. (Although it did precipitate the end of the somewhat smaller tech bank, Signature Bank).
Why Did Silicon Valley Bank ACTUALLY Collapse?
So why did the bank actually fail? The answer is not that it had “1 Black” on their board like The Wall Street Journal editorial pages suggested.
The bank failed for the reason pretty much all banks fail; people requested to pull out more money than the bank had on hand.
The reason they didn’t have enough money is a little complicated and definitely contested. Essentially, the bank bought a ton of treasury securities (which are generally a safer bet). But when the Federal Reserve began to raise interest rates to combat inflation, the value of those securities decreased. Couple that with trouble in the tech industry, their decision to have a ton of uninsured depositors, other serious mismanagement issues, and the bank took a massive financial hit.
Once they announced their losses, depositors began to pull out their money fast (in what’s known as a bank run). Since SVB didn’t have enough funds to pay those people back, regulators closed down the bank.
Will The Bank’s Closure Hurt Black Founders?
There is some talk that the closure of SVB could hurt Black entrepreneurs who banked with them. The bank was known for working with and supporting entrepreneurs of color who often have difficulty accessing banking resources.
Not only will some of these businesses take a massive hit, but these CEOs will also have to search for new banking relationships that can be difficult to find.
“I’m very nervous that I will not be able to raise the money I need to keep my company going,” Barbara Jones-Brown, founder and CEO of the IT retail fraud prevention company Freeing Returns, told NBC News, “and it’s so scary after the beautiful, amazing year we had last year.”
Isa Watson, a Black founder of a voice-only social messaging app Squad, told CNBC that Black founders like herself who banked with SVB had a different reaction to the bank’s collapse than white founders:
“This is so sad,” Watson recalls a fellow Black founder telling her following the bank’s failure. “You know how it is for us. You know, we don’t really find people that back us up like that in a big way.”
Finding someone else to work with won’t be easy, she says. “It took me about two years and 400 no’s for the first VC to take me seriously,” Watson told CNBC.
Should The SVB Collapse Scare the Average Black American?
Black CEOs who banked with the California-based bank aside, the average Black American doesn’t need to be super concerned just yet.
First and foremost, unless you’re holding over $250,000 in a single bank account, your money is likely insured by the Federal Deposit Insurance Corporation. (Most large banks are insured, but it doesn’t hurt to check)
At this point, it doesn’t look like the Silicon Valley Bank contagion will spread to the really big banks. However, that doesn’t mean that the issues that led to SVB’s collapse couldn’t harm other similarly sized and situated banks.
We know that when the U.S. economy gets cold, Black bank accounts get pneumonia. So it certainly doesn’t hurt to pay attention to larger economic issues like high inflation, the debt ceiling fight, and whether other banks start to suffer.
But in the meantime, there’s no need to start stuffing your paychecks under the mattress.
My small business banked at SVB and almost lost $300,000. I worry some banks will never take care of Black of women founders.
Alexandra York
Sat, March 25, 2023
Mitch Gilbert, the founder of Oya Femtech Apparel, banked with SVB.courtesy of Oya
Startup founder Mitchella Gilbert almost lost $300,000 in the Silicon Valley Bank collapse.
Today's uncertain banking market does not bode well for founders of color, they said.
Gilbert revealed how other founders of color can protect themselves amid banking uncertainty.
Switching business bank accounts from Silicon Valley Bank to Chase Bank was a to-do list item in Mitchella "Mitch" Gilbert's notebook prior to the fallout earlier this month.
The startup founder knew it was time to diversify their capital for financial security. But they were too late. When Gilbert arrived at SXSW on March 10, they learned of the crash alongside their investors.
"It was actually a really great way to learn that you potentially lost over $300,000," Gilbert told Insider, adding that they were happy to have investor support in such a tumultuous time.
Gilbert, who is the cofounder and CEO of the femtech and athletic apparel company Oya, regained access to their funds on March 13, after the Federal Deposit Insurance Corporation said it would protect depositors with funds in SVB. They transferred their funds to Chase Bank and plan on moving half of that money into First Women's Bank.
However, the experience has altered Gilbert's business mindset and financial plans, they said.
"We're already in an economy that is having a detrimental effect on founders of color," Gilbert said, noting the decrease in venture capital investments in Black-owned businesses. "When you're adding in this additional volatility, those numbers are in no way going to get any better."
Gilbert, who has raised $1.3 million in pre-seed VC, revealed how other founders can protect themselves amid banking uncertainty. This is an as-told-to story based on an interview with Gilbert that has been edited for length and clarity.
SVB's detrimental impact on founders of color
I could have lost over $300,000, which would've cut my runway from 14 months of capital to about six months and drastically changed our strategy.
Payroll was the biggest concern: Even investors were texting us ensuring we knew how important it was to make payroll despite the news.
I know multiple other founders who gave up additional equity that weekend for bridge capital (a interim form of financing a founder can use until permanent funds are available), negatively impacting their balance sheets. They were trying to do the right thing in order to pay employees but it was discouraging to see venture capitalists who were essentially acting like sharks and taking advantage of that need.
Many of the women who were impacted by SVB, specifically the Brown women, noticed how quickly our government reacted. It was this crazy feeling of "I think we'll get the money back because our government doesn't let rich white men fail.
Yet still, the uncertain banking market does not bode well for the future of investments in diverse founders.
It's important that founders find opportunities that will protect them along the way.
There's a lot of fear, sadness, and frustration right now. But I advise entrepreneurs to go after non-dilutive capital (funding that doesn't require the recipient to give up equity in the company), which can be won through business and pitch competitions. I also advise them to go after low-interest or interest-free loans. These alternative methods of generating money are especially important post-SVB-collapse and while speculation spreads about other banks.
I am excited about a new bank called First Women's Bank that opened in 2021. It was started by women to support underfunded entrepreneurs. When SVB closed, I was pushed toward FWB by my investors as the bank opened floods of accounts for other women founders and founders of color.
What that really means is that our community has just become that much tighter. We don't expect these other big groups to take care of us. So we have to band together and figure out how to take care of ourselves.
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