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?
Tags: bank run, banking, Biden Recession, Democrats, Gary Tan, Jay Ersapah, Kim Olson, Laura Izurieta, Regulation, Signature Bank, Silicon Valley, Silicon Valley Bank, Social Justice Warriors, Y Combinator
That transcript also has this sobering figure: “97% of the deposits at Silicon Valley Bank. 97% are not insured by FDIC because they’re an accounts over $250,000. These company accounts that would be $169 billion.”
The first $250k is still insured. So unless the payroll they have to cover on Monday is > $250k, they’re covered.
If they’re paying on Monday 3/13, that’s a weekly or biweekly payroll, not a monthly.
Assuming biweekly, that means their payroll has to be over $6.5 million / year to no be able to cover it (weekly then it would have to be > $13 million).
Sorry, but you’re not a “small startup” if your payroll is > $6.5 million / year
And if you’re that big, and no one ever said “gee, perhaps we should have our money in more than one bank?” then you’re so poorly run that you should be going out of business.
Christ on a crutch, I’ve got my money in checking accounts with multiple banks, and I don’t’ have more than $250k in cash assets total.
So apparently the idiots all in love with Diversity have never heard of diversification?
The idjit class is running the world. Pragmatism is a lost virtue to these people; they live in the mind-constructs that they’ve created in their heads, and pay little to no attention to the real world.
Expect more of the same to come crashing down, in the near future. Not the least of which are going to be all the Chinese banks. SVB was engaged in that trade; it’s possible that they’re exposed there as much as they are here in the US.
Most of these idiot children have no business whatsoever doing what they have been elevated to. They’re basically morons, with no common sense and very limited practical value.
I honestly have to blame the system, which has been skewed for far too long in the direction of what amounts to idiot savant autism, because all that you need to do is present as “smart” by passing the tests, doing the classes, and getting the credentials. There’s been very limited intrusion of consequence and reality into these people’s lives; that’s about to change, I suspect.
There is only so much idiocy that can be absorbed by any system; what we have going on today is the effect of our system producing way more idiocy than it can effectively consume. So, be braced for some difficult times, while the idjit class experiences reality ensuing.
This is what happens when women run things.
Thank you Greg; a voice of sanity amidst the panic. Even if the $250,000 is delayed in release, the companies have easy options as that money is guaranteed by the US government. And looks like Yellen caved, full bailout. Someone earned their 10%.
This is the first crack in the Potemkin facade. If you don’t take the warning from this, and take appropriate steps? You’ll pay the price.
There’s a lot of fake stuff out there; fake jobs at tech companies, fake money invested, fake money from fake assets that don’t actually exist. It’s all virtual, a creature of imagination. What happens when the marks stop believing? When the sheep look up?
We’re in for some rough times. I expect that at least a part of this is due to the realization that the demographics aren’t implying constant growth, anymore, and they’re all trying to figure out how to make that work.
I don’t think there’s a precedent for these times, unless you go back to the depopulations of Europe from the Black Death, or the Mongols depopulation efforts further east in Eurasia. Nobody quite grasps what is going on, or how to plan for it all.
it’s amazing how when “the right people” get into trouble, they’re too important to allow the natural process to ensue. they must have a bailout, either directly or in this case indirectly. the rest of us schmucks? well…
every fucking entity on the planet thinks the USA taxpayer is their guaranteed insurer of last resort. I’m sick of it.
This is what the world looks like when it’s run by summer children.
Greg The Class Traitor:
Acknowledging up front that I may well be wrong, and further acknowledging that this whole economic situation makes a football bat look rational; I was given to understand that especially for tech startups one of the conditions of getting the loan at Silicon Valley Bank and others in that specialized business is that they contractually require the startups to do ALL their banking through the loaning bank. It doesn’t make things less stupid, but if true the startups had no choice.
Subotai Bahadur
“In a footnote, Silicon Valley Bank said the fair-market value of its held-to-maturity securities was $76.2 billion as of Dec. 31, or $15.1 billion below their balance-sheet value. The fair-value gap was almost as large as Silicon Valley Bank’s $16.3 billion of total equity—which, KPMG could point out, is something anyone reading the financial statements could have seen.”
So the bailout will be at least $15.1 billion, and likely more given the outflows since December 31, 2022?
I’m looking at this and thinking “a liquidity crisis isn’t the same as insolvency, except in the very short term”, and so Uncle Sam making good on the depositors won’t be as high-cost as it would be if the bank’s assets were truly kaput. So, maybe not a dumb move to cover it?
Bull. A load of bull. I am a venture capitalist and it would stink to have a firm invested there but guess what you do? You extend a loan out of your fund to the startups until the money flows, which would have been at least 6months. You renegotiate, and invest at a new equity price. If the company was good before, why not now? Sucks for founders because they are on the hook for either the loan, or to sell more equity; but they didn’t do their diligence on the bank now did they?
Subotai Bahadur,
If true, were I running the company then such a bank is the last one I’d chose to do business with
Hopefully this crash will cause people to reject such conditions in the future.
Because that’s insanely stupid, for a host of reasons
The Daily Mail is now headlining that a newsletter was saying back in late February that the bank had a 185:1 debt-to-asset ratio.
I’m just a dumb layman, but that sure seems sorta… High. A little “risky”.
They went 8 months in 2022 without a “chief risk-management officer”, while the CEO was lobbying Congress for reduced oversight. They hired former Lehman Brothers executives, along with guys from Deutsche Bank, another notorious failure of the recent past.
And, I, an American taxpayer, am being asked to bail these stupid c*cksuckers and their clients out? Would they bail me out, if I made stupid decisions?
This is going to end a la lantirne, unless someone pulls their heads out and realizes how pissed off the average citizen is getting. These oh-so-proper-woke types take all these risks like they do, they blow up (predictably…) and we’re asked to bail them out.
Here’s a quick bit of advice for the leading lights of our nation, right now, right here: The responsible parties for this crap had best be identified, and properly made to pay their share. Bonuses for these ass-clowns? No. Just… No. Every penny they’ve made, every asset, everything that they own needs to be made forfeit. That’s what would happen to any of us, out here in flyover country.
Subotai Bahadur,
I am skeptical about that. It would seem to be a textbook violation of the anti-tying rules. I suspect something got lost or severely exaggerated in the retelling.
Jim
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