silicon valley shocker one year after svbs sudden collapse 56


Silicon Valley Shocker: One Year After SVB's Sudden Collapse


Robert Tavares

March 10, 2024 - 16:27 pm


Silicon Valley Bank's Collapse: A Year On

The Silicon Valley landscape was gripped by a paradigm-shifting event on March 10, 2023. For entrepreneurs like Eric Vogel, founder of the recycling startup Circularr, what promised to be a breakthrough day due to a pending funding deal quickly transformed into an unforeseeable setback. A day marked by due diligence and hope gave way to chaos and disappointment as the investor poised to seal the deal with a routine final reference call became notably absent. The reason? The abrupt and breathtaking collapse of Silicon Valley Bank (SVB), a key financial partner to many in the tech community. This marked the beginning of a tumultuous period for Silicon Valley, reverberating dread and uncertainty across the tech landscape.

Signage outside Silicon Valley Bank headquarters in Santa Clara, California, US, on March 9, 2023.

The downfall of SVB was not just a local disturbance but sent waves of panic far and wide, triggering profound trepidation among the leaders and innovators of Silicon Valley. Garry Tan of Y Combinator cautioned that the collapse could spiral into an "extinction-level event" for tech startups, while investor Jason Calacanis emphatically aired his alarm on social media, declaring, "YOU SHOULD BE ABSOLUTELY TERRIFIED." It seemed, for a time, that this catastrophic event might engender a widespread financial contagion across the US banking sector.

Recovery and Resilience: Silicon Valley's Return to Stability

Remarkably, the tech industry demonstrated resilience, and just a year following the dramatic upheaval and subsequent rescue of the bank, normalcy seems to have returned. Startups have resumed their quests for suitable repositories for their capital. Some venture capitalists (VCs), now looking back on the event with distance, consider it a distant memory, no longer an active concern. Silicon Valley Bank itself has surged back into the arena, adopting the cheeky marketing slogan, "Yes, SVB," signifying its tenacious rebound.

For Vogel and Circularr, the calamity had tangible consequences. The awaited investment call was permanently shelved as the investors withdrew, their confidence shaken by the crisis. "It spooked them," Vogel recounted, expressing his belief that without the SVB debacle, their financial prospects would have been decidedly different.

Adaptation and Evolution: A Tech Ecosystem Transformed

The implosion of SVB wasn't just a mere blip; it heralded a year of hardship and a broader cooling off for the startup and investment sector globally. Research by VC firm NFX unveiled that 59% of founders believed the crisis would greatly reduce their capacity to secure funds. And even amid an artificial intelligence surge, investment levels in 2023 hit their lowest ebb since 2019.

Menlo Ventures partner Matt Murphy narrated the diligent efforts by SVB executives, who embarked on a mission to restore the bank's standing in the Valley, assuring clients of the institution's renewed strength and comparably unchanged team. According to Murphy, SVB representatives were transparent about the lessons learned, emphasizing stability and continuity as they rebuilt bridges.

SVB's commercial banking President, Marc Cadieux, recognized the initial step towards redemption started with a heartfelt apology. The bank's fall was a traumatic event, and mending fences required a carefully measured approach to regain the trust of their clientele, Cadieux explained.

Banking Behavior Post-SVB: Diversity Over Dominance

Since the SVB ordeal, startups have invariably altered their banking behavior. Gone are the days when SVB was the ubiquitous default, catering to every financial obligation from venture debt to savings, even extending to mortgages and startup funding. The new paradigm allows for diversified banking relationships as a standard practice.

Reflecting on the immediate aftermath of the crisis, Edith Yeung, a general partner at Race Capital, recounts the initial panic when their funds were entirely tied up with SVB. But now, the norm is to not "put all their eggs in one basket," ensuring multiple banking relationships for safeguarding assets. Yeung highlighted that a portion of the founder community remains wary of SVB, opting for alternative banking partners.

Conversely, the loyalty for SVB's client experience has retained a cohort of founders who, still appreciative of the bank's services, have received counsel from individuals like Jai Das, co-founder of Sapphire Ventures, to mitigate risk by dispersing their funds across several institutions.

Emerging Victors in the Wake of Crisis

In the ensuing tumult of SVB's downfall, some fintech startups identified a silver lining as they swiftly stepped in to fill the void. Credit card startup Brex Inc. quickly rose to the occasion, facilitating the opening of new accounts for companies in limbo and launching a considerable $1 billion emergency bridge loan initiative intended to cover payroll requirements during the crisis.

Henrique Dubugras, Brex's co-CEO, noted a surge in customer growth, with deposits doubling from $3 billion to around $7 billion post-crisis. This was a testament to the public's perception of Brex's responsive action, in stark contrast to its competitors. Impressively, the startup secured the loyalty of more than 80% of the customers it acquired amid the SVB crisis.

Meanwhile, for Rippling, headed by CEO Parker Conrad, the SVB collapse presented a pressing challenge. With approximately $300 million of its funds held at the failing bank, Rippling had to find immediate solutions to secure payroll for its clients' employees. In response, Conrad assembled a contingency fund of $500 million. Describing it as "probably the most stressful day of my life," he was fortunate that the subsequent bailout of SVB rendered the emergency funds unnecessary. Despite the tense period, Rippling exited the crisis relatively unscathed and financially robust.

The Uncertain Path of Innovation Amidst Adversity

The tech startup journey, even in the absence of a banking meltdown, is often rife with volatility. Circularr's Vogel shared his rocky road to securing funds, marked by an upswing in fortune when an Israeli investor nearly sealed a deal, only for geopolitical tumult following a conflict in the region to once again derail plans.

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As the industry continues to grapple with the ramifications of the SVB collapse, the complex interplay of risk, opportunity, and resilience remains at the heart of Silicon Valley's narrative. The valley, often hailed for its innovation and bold ventures, has once again showcased its determination to adapt and move forward in the face of financial adversity.

The revival story of Silicon Valley Bank and the resilience of the larger tech ecosystem signify an enduring spirit of reinvention in the face of crisis. With newfound wisdom and caution, startups and VCs alike navigate the post-SVB landscape with diversity in banking relationships and a keener sense of vulnerability — strategic shifts that promise both stability and sustained ingenuity.

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