The speed of Silicon Valley Bank's demise last week was shocking, and some people blame venture capitalists, who told tech companies in their portfolios to take all their money out, fast.
"I'd like to formally thank my peers in the venture community whose stellar leadership over the past 48 hours triggered a run on deposits at Silicon Valley Bank, ultimately toppling one of the most important institutions in our ecosystem," Brad Svrluga, co-founder and general partner at Primary Venture Partners, tweeted on Friday.
He acknowledged that the bank made some big mistakes, including major missteps in communications as its balance sheet crisis grew, in his tweets.
"However, the ultimate failure was from the hysterical urging on social media of VCs who undermined our shared ecosystem," he said. "It has been a stunning failure of leadership. And I won't even get started on the fact that some of these VCs had neobank portfolio companies that stood to benefit directly from SVB's failure."
Former FDIC chair Sheila Bair also pointed to the role venture capitalists played in this crisis.
"This bank seemed to have a reasonable plan to stabilize itself," Bair said in an interview on MSNBC. "But its depositors panicked, and almost all of its deposits were uninsured. And most of this was from pretty sophisticated institutional investors, venture capitalists and startups. That's what I find so astonishing — that there was this herd mentality by sophisticated individuals to take this money out."
Bair now writes children's books about finance. "I'm thinking maybe I should write one about banking for venture capitalists, because their behavior suggests that maybe they didn't understand the mechanics about how banks work. It's a classic Jimmy Stewart problem. You come in and take out all the money at once, you're going to force the bank to close, even if it may otherwise be solvent," she said, referencing the bank run Stewart tries to stem in his movie "It's a Wonderful Life."
The venture industry started and accelerated the run on the bank, said Jay Reinneman, general partner of Propel Venture Partners, in an interview Friday.
"Very loud voices were talking over Twitter when they didn't really know what they were talking about, and they were even giving advice about switching financial services to somebody else," Reinemann said. "Some of this hysteria was sped up by the venture industry basically saying, hey, there's fear here, and then advising portfolio companies to move their money out."
In a call on March 9, Silicon Valley Bank CEO Greg Becker asked clients, including venture capitalists, to stay calm even though the bank disclosed it had been forced to sell a $21 billion bond portfolio at a $1.8 billion loss.
"He tried to explain the balance sheet issue and how they were trying to solve it, and reiterated several times that the most important issue here is, guys, please be loyal to us as we have been loyal to you for many, many years," Reinemann said. "Meaning they take risks that many other banks wouldn't take with startup companies, as well as just building relationships between startups and investors, even between VCs and potential investors in those VCs. And he's saying the thing that would cause the problem for SVB is a bank run. And unfortunately, I think the ball got rolling and I'm not sure if his call helped or hurt."
That same day, investors and depositors tried to pull $42 billion out of Silicon Valley Bank, according to Bloomberg, including Peter Thiel's Founders Fund, which withdrew millions and emptied its accounts. Founders Fund also advised its portfolio companies to pull money out of the bank amid concerns about its financial stability and told them there was no downside to removing their money from the bank,
"The latest memo from Peter Thiel at Founders Fund has set off a chain reaction among other VCs who have also warned their startups to do the same," wrote R "Ray" Wang, founder, chairman and principal analyst of Constellation Research, in a March 9 blog. "Gary Tan also sent off a note to all the Y Combinator portfolio today. Many VCs are sending warning letters to their portfolio companies."
"Could Silicon Valley Bank have survived if people didn't pull money out the way they did and as quickly as they did?" said Theo Lau, co-founder of Unconventional Ventures, in an interview Friday. "One part of me is leaning towards yes, it could have survived."
Some put the speed of the bank's demise down to all the discussion about it on Twitter and online news outlets.
"If this was 20 years ago, I don't think Silicon Valley Bank would be in this position," said a bank executive who did not want to be named. "With the way news spreads on the internet, this all went down within 36 hours. If anyone tells you this is normal or expected, they're lying. This has taken everybody by surprise in terms of the speed."
Silicon Valley Bank also suffered from the timing of its attempt to raise money.
"The news was not received well because they did it on the day Silvergate announced its liquidation," the banker said. "They took losses from selling securities and bonds, which sounded similar to Silvergate, and public markets did not receive the news well. If they had waited a month, it would have gone better."
To be sure, there is much more to the story of the fall of Silicon Valley Bank. It had fast deposit growth during the pandemic, when interest rates were at historic lows, and put a lot of those deposits in Treasury bonds. As the cost of deposits rose, there was no corresponding rise in Treasury rates. And as some of the bank's tech clients suffered hard times, the bank's projected deposits dropped and it tried to sell off assets.
It also had a large asset-liability management problem.
"If you own a security with a maturity of 10 years, but your liabilities are 30 days, that's a mismatch," said Kevin Heal, an analyst at Argus Research, in an interview. "That's why banks typically have shorter liabilities in their loan book, versus an insurance company that has long-term liabilities because they write insurance policies 30 years out."
Reinemann acknowledged the bank's problems. "They probably were in unprecedented times in the rise of the amount of deposits that they saw," he said. "I don't know that any other bank saw that kind of rise in deposits over the last couple of years. And then with interest rates rising and this crash that's been happening in the technology industry, their deposits were shrinking pretty fast. They got in trouble. They did mess up asset-liability management, but I think they were in the process of fixing it."
Like many others in Silicon Valley, Reinemann hopes another bank will buy Silicon Valley Bank.
"There's a strong need for them in the community," he said. "I think most people respect them. I don't know what the community is going to do without them."
