The more I hear about the Silicon Valley Bank collapse mentioned in Friday’s LinkSwarm, the worse it sounds.
I saw a snippet of Gary Tan, CEO of startup fund Y Combinator, talking about how bad it is. I can’t find a video of the full interview online, but evidently it was excerpted on Bannon’s War Room podcast and there’s a transcript.
[Interviewer]: How many of these startups that have been through Y Combinator, for example, have their cash tied up at Silicon Valley Bank? And over this weekend, I’m gonna try to figure out how they’re gonna make payroll next week. Do they have to go to investors and say, can you front me some cash so that we can stay alive?
[Tan]: We have funded about 3,000 active startups right now. I would guess that this affects more than 1,000 startups. And about a third of those startups will not be able to make payroll in the next 30 days in the current configuration. As of this morning, RIPLING, which many startups use to manage payroll and benefits, transfers were not being processed by SVB for payroll.
And so that’s a really existential threat for companies broadly. These are founders who are texting me and calling me saying, do I need to furlough my workers next week? Because I do not have other bank accounts, you know, a Google or a Facebook or even companies farther along with a Treasury Department. They’re going to be able to weather this, but if SVB is your only bank, it’s actually an existential risk. You’re going to go out of business if you can’t pay payroll. And that starts Monday.
That transcript also has this sobering figure: “97% of the deposits at Silicon Valley Bank. 97% are not insured by FDIC because they’re in accounts over $250,000. These company accounts that would be $169 billion.”
So what was Silicon Valley Bank doing rather than properly managing their risk profile? Banks have Chief Risk Officers whose job is to make sure their risk exposure ratios don’t get out of whack. Well, guess what? SVB didn’t have one for some nine months. “SVB’s former head of risk, Laura Izurieta, who formerly performed a similar role for Capital One, left the bank in April 2022. She wasn’t replaced until January 2023 when the bank hired Kim Olson, formerly of Japanese bank Sumitomo Mitsui.”
But don’t worry: SVB had CRO for the bank in Europe, Africa and the Middle East who was entirely focused…on Social Justice and ESG.
Jay Ersapah, who acts as CRO for the bank in Europe, Africa and the Middle East and who describes herself as a ‘queer person of color from a working-class background’ – organized a host of LGBTQ initiatives including a month-long Pride campaign and implemented ‘safe space’ catch-ups for staff.
In a corporate video published just nine months ago, she said she ‘could not be prouder’ to work for SVB serving ‘underrepresented entrepreneurs.’
Professional network Outstanding listed Ersapah as a top 100 LGTBQ Future Leader.
‘Jay is a leading figure for the bank’s awareness activities including being a panelist at the SVB’s Global Pride townhall to share her experiences as a lesbian of color, moderating SVB’s EMEA Pride townhall and was instrumental in initiating the organization’s first ever global “safe space catch-up”, supporting employees in sharing their experiences of coming out,’ her bio on the Outstanding website states.
It adds that she is ‘allies’ with gay rights charity Stonewall and had authored numerous articles to promote LGBTQ awareness.
These included ‘Lesbian Visibility Day and Trans Awareness week.’
Separately she was also praised in a Facebook post by the group ‘Diversity Role Models,’ a charity which campaigns against homophobic, biphobic and transphobic bullying in UK schools.
Being in Silicon Valley, I’m betting that the entire company was whole hog backing DEI, ESG, Transwhatever and the entire rainbow of victimhood identity politics acronyms.
In a strong economy, you can get away with a bit of shareholder-value-destroying, virtue-signaling luxury goods as long as your core business is strong. But with rising interest rates, Biden Inflation, the Biden Recession and the gale winds of deglobalization, taking your eye off the ball to focus on anti-reality SJW garbage is a recipe for disaster.
And all the startups that relied on SVB for their banking are well and truly screwed.
Update: Uncle Sugar is evidently going to make all depositors whole at both SVB and newly insolvent Signature Bank. This relatively early intervention may indeed be the best move to prevent bank runs at other institutions, and may reflect a change in philosophy since 2008. (It’s a thorny subject.) But it does make me think that a lot of well-connected depositors were screaming in the ears of Washington to be made whole at the taxpayer’s expense. What do you think the odds are that the same consideration wouldn’t be given to, say, a Texas bank that specialized in underwriting oil and gas ventures?