I don't understand this comment. 1) SVB was not managed by VC's. 2) SVB went under because they bought US Treasuries, not because they took risky bets on startups.
Yeah, but what are the specific cash amounts we are talking about?
Such extreme exposure to interest rate risk would've blown up in some other ways - say, a large client processing a routine payroll, executing stock buyback, or investing in an entity that banks elsewhere.
SVB had risks, VCs did what they should do to respond to said risk. Would you blame regular working class people in a retail bank run scenario for wanting to save their money from potential risk?
No. SVB price crashed 50% in one day and got downrated by Moodys, which exposed a bunch of red flags that would have resulted in a bank run regardless of what VCs said.
1. If they had more short dated treasuries, they could have used them to fund drawdowns, and would not have had to sell their long dated treasuries, that went underwater as interest rates rise.
2. If they had not been overly exposed to one sector, a sector that largely existed due to 'free money' of zero interest rates, then large scale draw downs would not have happened as interest rates rise.
YC asked for exactly what just happened. (Depositors be made whole.) They did not ask for anything beyond what regulators ultimately deemed reasonable.
I think this is very much in question. Silicon Valley Bank was absolutely part of a cohesive microeconomy. There's no other explanation for the absolutely uniformity with which all those startups were using it for what should have been 100% commodity banking services. Those startups all banked with SVB because their VCs told them to.
And the VCs told their startups to bank with SVB because... we don't know yet. But any time you have a signal this strong, there's a driver.
Add to that the fact that the moment all those startups seemed likely to lose banking services, however temporarily, those same VCs freaked the fuck out of their minds on twitter and started shrieking in all caps about the end of western capitalism. That's not mere concern for their poor startups (most of whom were going to fail anyway, after all -- they're startups!). These VCs were exposed to the SVB failure. They were leveraged somehow and about to get caught holding the bag.
There was some kind of insider dealing going on with SVB. It wasn't just a bank. We for sure know that much. Whether we have criminal fraud or not is an open question.
SVB made loans to cash-rich companies approximate to their funding rounds, when they were least likely to immediately use the cash. These loans typically required the company to hold the money as a deposit in SVB. These deposits were used to buy long duration bonds.
In other words, SVB used these companies to produce new money that they could earn interest on.
One element is that the banking industry as a whole behaves pretty chaotically with 'unusual' customers.
Big wire in from a fundraising round? Account frozen. Big wire out for an acquisition? Account frozen. Bank learns your customers include cryptocurrency companies? Account frozen. Bank account balance huge relative to your business' cashflow? Account frozen. Random bank staff doesn't understand what you're doing? Account frozen.
In that kind of climate its almost inevitable that VC's would recommend a single bank known to not behave erratically for the activities that are usual for their investments.
"I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty."
The point is that these VC's didn't act to support their investments, they flailed around begging for bailout (that they probably didn't need but they didn't understand banking well enough to know that or bother to consult any experts before making public statements).
They behaved badly and should be embarrassed and everyone should remember it.
SVB regularly provides credit to risky startups, which is why they existed in the first place (because other banks wouldn't lend at those rates). So, yes, they sorta did place risky bets on startups.
Source for this? All evidence show that their failure at least started with them owning a lot of "safe" bonds, whose value declined with increasing fed rates.
Yes, long-term treasuries which for years had been at very low interest rates. You're certainly right that they shouldn't have done that, but it doesn't invalidate GP's point.
notfromhere|3 years ago
lambic2|3 years ago
lxm|3 years ago
Such extreme exposure to interest rate risk would've blown up in some other ways - say, a large client processing a routine payroll, executing stock buyback, or investing in an entity that banks elsewhere.
ssnistfajen|3 years ago
epvgwwqe|3 years ago
vkou|3 years ago
That's not their fault. Would you keep your money in an insolvent bank?
somewhereoutth|3 years ago
1. If they had more short dated treasuries, they could have used them to fund drawdowns, and would not have had to sell their long dated treasuries, that went underwater as interest rates rise.
2. If they had not been overly exposed to one sector, a sector that largely existed due to 'free money' of zero interest rates, then large scale draw downs would not have happened as interest rates rise.
madelyn|3 years ago
seizethecheese|3 years ago
ajross|3 years ago
I think this is very much in question. Silicon Valley Bank was absolutely part of a cohesive microeconomy. There's no other explanation for the absolutely uniformity with which all those startups were using it for what should have been 100% commodity banking services. Those startups all banked with SVB because their VCs told them to.
And the VCs told their startups to bank with SVB because... we don't know yet. But any time you have a signal this strong, there's a driver.
Add to that the fact that the moment all those startups seemed likely to lose banking services, however temporarily, those same VCs freaked the fuck out of their minds on twitter and started shrieking in all caps about the end of western capitalism. That's not mere concern for their poor startups (most of whom were going to fail anyway, after all -- they're startups!). These VCs were exposed to the SVB failure. They were leveraged somehow and about to get caught holding the bag.
There was some kind of insider dealing going on with SVB. It wasn't just a bank. We for sure know that much. Whether we have criminal fraud or not is an open question.
noitanigami|3 years ago
In other words, SVB used these companies to produce new money that they could earn interest on.
belter|3 years ago
nullc|3 years ago
Big wire in from a fundraising round? Account frozen. Big wire out for an acquisition? Account frozen. Bank learns your customers include cryptocurrency companies? Account frozen. Bank account balance huge relative to your business' cashflow? Account frozen. Random bank staff doesn't understand what you're doing? Account frozen.
In that kind of climate its almost inevitable that VC's would recommend a single bank known to not behave erratically for the activities that are usual for their investments.
qwertyuiop_|3 years ago
JamisonM|3 years ago
The point is that these VC's didn't act to support their investments, they flailed around begging for bailout (that they probably didn't need but they didn't understand banking well enough to know that or bother to consult any experts before making public statements).
They behaved badly and should be embarrassed and everyone should remember it.
adastra22|3 years ago
mbesto|3 years ago
SVB regularly provides credit to risky startups, which is why they existed in the first place (because other banks wouldn't lend at those rates). So, yes, they sorta did place risky bets on startups.
lambic2|3 years ago
n3rv|3 years ago
DennisP|3 years ago