Around noon yesterday in Los Angeles, venture capital firm Upfront Ventures investor Mark Suster began urging:calm downOn Twitter: Silicon Valley Bank misrepresented its message on Wednesday about its efforts to strengthen its balance sheet, saying startup founders have put their deposits in a tech-friendly, 40-year-old institution at risk. I was starting to fear that I was beingVC community ore must speak out publicly to quell panic @SVB_Financial,” wrote Suster, who said he believes in the health of banks, adding that the biggest risk to startups, the VCs banks have long dealt with, and SVB itself is “massive panic.” claimed to be deaf.
As we now know, Suster was already too late. The industry was on edge, and bank CEO Greg Becker quietly spoke to bank customers on a Zoom call to ease their fears and watch. to further scare customers by telling them:
By this morning, after halting trading in Silicon Valley Bank (its stock had already fallen 80% yesterday and had plunged again), the California Department of Financial Protection and Innovation closed the bank and placed it under FDIC control. rice field. As bank customers grapple with how to pay their bills in the meantime, figure out the next steps.
Today we asked Suster about his proposal for startups to keep their money with SVB. He suggested that he had no regrets. He is also in the venture community, Pointing What they argue is that a handful of VCs may have set the alarm bells across the startup ecosystem, causing an unstoppable contagion, not just SVB, in the process. Here is that interview, lightly edited for length and clarity.
TC: You were on CNBC this morning and you said that you think portfolio companies should always have diversified where they keep their money. But my understanding is that Silicon Valley Bank required many startups to have an exclusive relationship with Silicon Valley Bank.
MS: Normally, SVB doesn’t need exclusivity unless it incurs liability.The problem is that many are in debt and we have warned [portfolio companies] A year on this.
What percentage of your startups do you think have diversified their banking ties?
About half are related to SVB. Probably half of them have separate accounts.
You were very visibly supporting SVB yesterday as everyone else was racing for an exit. Is SVB an investor in your venture?
no.
Was Upfront funded by SVB?
no.
Are you worried because you didn’t pay?
no. I heard yesterday about $12 billion out of SVB. SVB’s assets are just under $200 billion. [its assets] It left in a day. It’s not catastrophic, but the Fed knew it would accelerate. They don’t want a bank run, so my guess is that the Fed is in a perfect situation and wants someone to buy his SBV.
Are you surprised that no one has stepped forward yet?
Imagine there is a large group of people looking to buy a bank. How to evaluate in a situation where you don’t know how much you’re running away. How do you catch a falling knife?To [shutting down SVB this morning], the Fed stopped that knife from falling. Well, I think it will sell well by Sunday. JP Morgan, Bank of America, Morgan Stanley, [someone will step in to buy it]I think the panic will subside then. Because if you quit SVB because you’re worried about it, it doesn’t matter anymore.
How do buyers rate SVB? The market cap was around $6.3 billion when it closed this morning.
Bank valuations are correlated, but little correlated with their assets. If there are creditors and shareholders and the company goes bankrupt, the creditors will receive the money before the shareholders. People were betting on his SVB that common shareholders would get nothing because SVB would go bankrupt. [its market cap and assets] They didn’t think SBV would survive, which made it uncorrelated.
The important thing is whether there is an asset here and whether it has value. SVB is a highly cash-rich and well-run lender to the technology industry, and these clients are coveted. SVB not only serves startups, but also VC funds and PE funds. Imagine being able to access them all at once. That’s why many companies are working with the Fed to try to figure it out. [what’s what] It now includes numerous hedge funds and other large PE funds and banks.
Will a big bank try to buy SVB and run into antitrust issues here?
The Fed has one purpose and that is to avoid contagion. All other local or smaller banks are now being hit. So they will force something by Monday.
Think bankruptcy is the next step? Isn’t that what happened at Washington Mutual? Buyers want to buy good assets and leave all debts to the government, right?
This is not a formal bankruptcy, but it is very close. Do they give money to shareholders? I think their share could be zero. Acquirers may decide they don’t want to bail out shareholders, but shareholders are different than depositors.
Speaking of which, does Upfront offer bridge loans to startups that have lost access to funding so far in SVB?
This was 24 hours ago. We might start those conversations next week. We told the CEO that if we were in a position to need a bridge loan in the next two weeks, we would have to convene a board meeting. This is because it requires a board decision, and if people believe in your prospect, it shouldn’t be difficult to pay one or two of them. to do otherwise may hasten your demise, [going out of business] It was going to happen anyway.
While you’re publicly trying to calm your mates down, you may have privately advised the founders to move their money out of the SVB for safety’s sake.
I guarantee you I didn’t. All the VCs I know say, ‘I think your deposits are safe in SVB. We think bank runs are pointless, and experienced professional VCs in Silicon Valley understand that bank runs hurt everyone.
Are the Founders Fund and Coatue and Y Combinator partners not experienced professional VCs?
I said a handful of people were telling people to run to the door and congratulating them on it. How many bankruptcies and other ramifications would there be if the Federal Reserve hadn’t strengthened? These VCs are congratulating themselves. I see emails from VCs to their LPs (I work for several companies) and they forward things like “I’m very smart, aren’t I?” doing.
How many companies will no longer be able to run payroll as a result of this shutdown?
My guess is that this will be resolved by Monday or Tuesday and very few people will be affected. Beyond a week or two, many companies across industries will be affected. Anyone with a payroll today or Monday should either take a quick bridge loan from an investor or delay their payroll by 48 hours.
Can this be resolved really quickly?
What gives me confidence is that the Fed knows [the implications if it doesn’t].
Who will be hit hardest right away here?
SVB employees had a lot of money in the company’s stock because they trusted their employers. shareholder.
Who benefits from this situation? Where do you want to move your money?
I think more people trust big banks than small ones. That’s what I personally advise. I’m FDIC restricted and a cautious person so personally I already have my money spread across multiple bank accounts. We invest heavily. As for Upfront, it is banking with SBV and has an account linked to Morgan Stanley. Next week maybe two or he will open three accounts at other banks.
