Stupor and regrets of start-ups and investors after the bankruptcy of SVB
The collapse of Silicon Valley Bank in less than 48 hours has aroused astonishment among tech players who wonder how this institution, essential to their ecosystem, could have failed so quickly, and what is the share of responsibility of investors.
“I’m so angry. And sad. And scared. Remember, this is our fault. Collectively,” tweeted Nicole Glaros, entrepreneur and investor.
She thus described the tough choice that presented itself to start-ups on Thursday and Friday, between “the moral option, leaving your money at SVB, and being fooled” and “the immoral option, withdrawing your money” which endangers “thousands of start-ups and people you’ve never met”.
The former Californian bank boasted of having “nearly half” of companies specializing in technologies and biotechnologies financed by American venture capital firms, which closely control this niche market.
When a handful of these investors sounded the alarm, start-ups immediately answered the call.
“Thursday (…) I suddenly saw very explicit emails arrive, in capital letters, from my board of directors: WITHDRAW YOUR MONEY IMMEDIATELY!”, told AFP Clément Cazalot, boss of the start-up Machinery Partner.
The warnings came from powerful venture capital firms based in San Francisco and neighboring Silicon Valley, including Founders Fund (Peter Thiel’s company), Union Square Ventures and Coatue Management.
– “Poison” –
At the origin of the panic, a poorly put together presentation of SVB, initially designed to reassure investors and customers about the good health of the bank, despite its attempt to raise funds.
“I think we will realize after the fact that about 20 people dug up the hatchet between Wednesday and Thursday,” said Scott Gallaway, a New York University professor who works with start-ups.
“And when your investor calls you and tells you to withdraw your money, you withdraw your money,” he added during an interview on Pivot, a New York Magazine podcast.
The ensuing panic is reminiscent of scenes from the Great Depression of 1929, when customers stormed bank counters to collect their savings – but with entrepreneurs frantically trying to transfer their money online.
For many experts, however, investors are not responsible for the bankruptcy.
“They were forced to choose between two poisons,” Wedbush analyst Dan Ives told AFP. “The bank did not manage the risks as it should have. It caused the accident” which then led to a wave of withdrawals.
Two other banks went bankrupt last week: Signature Bank and Silvergate Bank, smaller but known for their privileged links with the cryptocurrency community.
– “Loyalty” –
Like SVB, they suffered from the Fed’s forced monetary tightening, which put pressure on their margins and jostled the cash-hungry new technology sector.
SVB and Silvergate are not comparable, believes Dan Ives, but they still had in common “a high concentration in risky assets”.
“The major risk that clearly emerges from all this is that of social networks”, analyzes “ProfessorStam”, co-founder of the start-up Magnetiq.
Thursday, “within minutes, my Twitter feed was covered with messages from prominent accounts, tweeted and retweeted, which simply announced the tragic end of SVB”, he said on Saturday on the platform.
According to this entrepreneur, “SVB was not in great shape, but it was virality and panic that finished it”.
He believes that this risk must now be taken seriously by banks, which have an interest in being more transparent about their activities, directly on social networks, where their customers are.
Founded in the 1980s, SVB had become a key Silicon Valley institution.
Before its creation, Californian start-ups “were ignored” by the big banks, wrote Michael Moritz, an investor at Sequoia Capital, in the Financial Times. “Ironically, SVB have paid a heavy price for their loyalty.”