EU News Digest Latest News & Updates
When Silicon Valley Bank crashed earlier this month, a lot of people — investors, analysts, everyday observers — quickly pointed fingers at the bank’s risky and costly strategy.
But some CEOs affected by the collapse don’t blame SVB’s bad bet, which centered around a sale of $21 billion worth of long-term bonds at a $1.8 billion loss. Instead, they blame the venture capitalists who advised large numbers of startups to pull their deposits from the bank all at once.
“It was an unfortunate situation. SVB was a great partner to all the innovation that’s happened in Silicon Valley,” Varun Badhwar, CEO and co-founder of Palo Alto, California-based security software startup Endor Labs, tells CNBC Make It. “I still fundamentally believe there was nothing foundationally wrong with the bank.”
Before the crash, SVB counted nearly half of the country’s venture-backed startups as clients, according to its website. But after the bank announced its bonds sale, its stock dropped and venture capitalists panicked, telling their portfolio companies to withdraw funds while they could.
Those startups took out more money than the bank had to give, creating a run. Chaos ensued.
Now, CEOs like Badhwar say they’re mourning the loss of a vital part of Silicon Valley’s ecosystem. CNBC Make It spoke with a group of startup bosses across a variety of industries, all of whom lost access to some, or all, of their company’s money during the crash.
For the most part, they agree that the bank itself wasn’t at fault — and small businesses will struggle without its presence.
SVB didn’t ‘deserve to be destroyed’
Badhwar was in the middle of interviewing a job candidate when one of his employees sent him a Slack message about SVB’s plummeting stock. It was the day after the bank had announced its bonds sale.
The CEO scoffed, assuming it was an overreaction. He even thought about buying shares of the bank while they were cheap, he says. But as investors’ and other founders’ attitudes changed throughout the afternoon, he decided to get the company’s money out.
Endor Labs wired $5 million — “enough capital to run our operations and cover payroll and expenses for six to eight months” — into a First Republic Bank account at 2:47 p.m., 13 minutes before SVB’s site crashed, Badhwar says.
Did SVB make some judgment errors? … Yes. Did they deserve to be destroyed? No.
Varun Badhwar
CEO, Endor Labs
The company left $10 million in its SVB account, which Badhwar was unable to access until early last week — after the Biden administration announced that all deposits at the bank would be covered by the Federal Deposit Insurance Corporation and Federal Reserve.
Now that the dust has settled, Badhwar says that with government backing, SVB might still be “the most secure place to have deposits” until an ongoing fear of similar runs at other banks dissipates.
“Did SVB make some judgment errors in how they invested into treasuries and bonds and firms? Yes. Did they deserve to be destroyed? No,” he says.
Belief in the country’s financial protections
If anyone has the right to be angry at SVB, it’s Lauren Schulte Wang.
Wang, the CEO and co-founder of Venice, California-based period health startup The Flex Company, kept all her company’s liquid capital in SVB. When she got frozen out, she and her husband Panpan — the company’s CFO and other co-founder — halved their own personal savings to make sure their employees still got paid.
It was a dramatic moment. Wang had no idea when she’d be able to access the company’s money again, or whether she’d ever be able to reimburse her personal expenditure. But even then, she blamed the bank run more on hysteria than SVB itself.
The crash reminded Wang of 2008, when she was an emancipated minor who lost all her personal savings in Washington Mutual Bank’s collapse. For her, the moral of the story remains the same: Trust the country’s financial system to protect you and eventually get you on your feet again.
If we don’t believe in the systems, they’re not going to work.
Lauren Schulte Wang
CEO and co-founder, The Flex Company
Early last week, Wang regained access to The Flex Company’s funds, and says she received promising news from her board about a potential reimbursement. “If we don’t believe in the systems, they’re not going to work,” she says. “Having gone through this twice now, I don’t know there’s anything else I could [do] but … try to be the leader for my team.”
That doesn’t mean the bank shouldn’t take accountability, Badhwar says. When SVB announced its bonds sale, it said it was rushing to raise money to make up for the losses. That was the first many investors had heard of a problem, let alone a potential solution, and it carried a price tag in the billions.
SVB’s continued poor communication over the following day is what finally convinced Badhwar to withdraw Endor Labs’ money, he says: “When there is a PR and communications failure … followed by misinformation spreading quickly on social media [that causes] a run on the bank, you just don’t want to be the last one there.”
A lost ‘pillar of the entrepreneurial community’
Without the miscommunication, investors might have never panicked. That places the blame squarely on SVB, says Ruth Health CEO and co-founder Alison Greenberg.
“Investor panic was a symptom, not the illness,” she says.
Greenberg’s pregnancy and postpartum health startup had money in both SVB and Mercury Bank, another financial institution popular among startups, at the time of the crash. She managed to mostly empty the SVB account before losing access, leaving less than $250,000 in frozen funds behind, she says.
Still, she remained stressed until the Biden administration’s announcement last week. “[My company] is still concerned about these lasting repercussions of this bank failure, of the bailout,” she says. “[But] I now have greater confidence in smaller banks and the government’s role to protect them.”
Investor panic was a symptom, not the illness.
Alison Greenberg
CEO and co-founder, Ruth Health
Greenberg may disagree with Badhwar and Wang about the cause of the collapse, but she shares their sense of grief. Nothing can replace what the bank represented to Silicon Valley and startups across the country, she says.
“There was a very, very sad moment of realizing SVB had imploded … they were a partner, an ecosystem, a thought leader,” Greenberg says. “It’s scary for us that people are likely going to be out of jobs, that a pillar of the entrepreneurial community and of small businesses in general that has been there for us for decades is [lost].”
Wang echoes her sentiment. Without SVB, she isn’t sure she’d have a business in the first place, she says.
“When I started the company back in 2015 — I’m not an independently wealthy person — I had cashed out my 401(k) to start the business and get manufacturing going,” Wang says. “No bank would take me on except for Silicon Valley Bank.”
DON’T MISS: Want to be smarter and more successful with your money, work & life? Sign up for our new newsletter!
Get CNBC’s free Warren Buffett Guide to Investing, which distills the billionaire’s No. 1 best piece of advice for regular investors, do’s and don’ts, and three key investing principles into a clear and simple guidebook.
