VCs praised Silicon Valley Bank in public. In private, they caused its demise
What a crazy weekend. The global tech ecosystem spent 48 hours in a spiral of panic because of Silicon Valley Bank’s downfall.
Founders, already fatigued by the many macroeconomic headwinds hitting them in 2023, were told that their cash reserves could disappear in front of their eyes over a rainy March weekend.
A series of unfortunate bond choices meant Californian startup lender Silicon Valley Bank was suffering a deficit in its books. That, and some fumbled public relations, sent the tech world into hysteria.
The venture capital community heard the news first. Despite being well-versed in the mechanics of a media storm, many tier-one VCs decided to instruct their portfolio companies to withdraw funds from the bank.
Perhaps these investor leaders were naïve to their influence, but this move started a domino effect that eventually turned into a bank run. Regardless of what critics say, it is this rapid withdrawal of funds that put SVB in the ground so quickly, not its bond position.
Spurred on by the market leaders, every responsible business and investor acted in their own self-interest to try and save SVB-held capital. This helped them make payroll, pay suppliers and ultimately keep their business on track. As an investor, employer or founder, you have an obligation to protect your own.
When the bank run began, there was no choice but to join in or potentially suffer the consequences.
Rise of the LinkedIn righteous
The Praetura Ventures team quickly mobilised and created a route to help our portfolio companies move their money as quickly as possible. UK searches for the ‘Silicon Valley Bank’ hit 50,000 last week, 100 times that of normal volumes. And eventually, at the peak of the madness, authorities in both the UK and the US stepped in, leaving many in financial limbo.
But in the midst of the anarchy, we saw the rise of the righteous rear their heads on LinkedIn and other industry networks. ‘Save Silicon Valley Bank’ petitions and statements of praise for the bank swamped our newsfeeds.
We, the VC community, publicly turned out in force to show how much we cared for SVB and valued its services. We rallied and promised we would continue to work with the company. We wanted it saved! This uproar led to a HSBC rescue deal for SVB’s UK subsidiary that luckily solved our problems.
We celebrated and patted ourselves on the back. Unfortunately, this self-praise was simply unjustified. We authored, inspired and executed the bank run. Like stockpiling toilet rolls in covid, this was every startup for themselves. And like our pandemic panic buying habits, it was us who caused the issue in the first place.
We brought the bank to its knees.
VCs must reflect on SVB crisis
No one fully disclosed their real position, talking the bank up publicly whilst moving money out of accounts in private.
Ultimately, history tells us that we don’t learn from these mistakes and will not accept any accountability. We saw herd mentality play out, whilst no one offered up the truth about the full picture.
Things won’t change in the future, but SVB’s rescue deal is not cause for celebration when we venture capitalists (partially) created the need for it to be saved. Those with influence in the industry should understand that actions speak louder than words.
Let’s hope they reflect on the SVB bank run next time we head into a crisis that could be avoided.
David Foreman is the managing director of Manchester-based investor Praetura Ventures.