The Demise of Silicon Valley Bank, Accelerated by Social Media
Last week’s warp-speed collapse of Silicon Valley Bank (SVB) captivated observers nationwide and around the world. The technology ecosystem could think or “talk” of little else, as evidenced by the tsunami of Tweets, Reddit threads, blog and podcasts, Zoom meetings, texts, old-school phone calls—you name the platform and SVB’s immolation was the topic du jour. No one was immune, not the bank officers facing endless questions, not startup execs, VC and PE investors, lawyers, nor accountants, and so on and so forth.
Modern financial news is an instant-gratification machine embedded in every aspect of our day-to-day, and it’s this rapid availability of information, innuendo, and rumors that was one of the key factors propelling SVB’s sudden collapse. And it’s part of the default contagion that’s spreading among regional banks. Ultimately, it’s contributing to a significant weakening of the US and world economy.
By contrast, in 1933, a seminal year in a decade in which about 9,000 banks failed, communication was a balkier thing. The US had a population of about 125 million, only about 10 % of whom had access to a telephone. News traveled slower, but in 1933 alone depositors in US banks lost approximately $140 billion.
Closing a bank account in the 1930’s required a depositor to stand in a line that snaked outside the bank and onto the sidewalk. Depositors had to follow police and bank guard instructions before their eventual appearance in front of a bank officer to request “all the cash in the account.” These machinations and delays allowed bank personnel to arrange to obtain the client’s money, but also to stall for time.
SVB put a modern twist on these tactics. SVB’s CEO, Greg Becker, implored people to relax during a midweek investor conference, adding fuel to the fire driving text, Twitter and social media traffic.
Some highlights:
March 9th:
Early in the day, Semafor reported on VC firms recommending startups pull capital out of SVB. Seeking Alpha picked up this coverage in a lead article of its own.
Peter Thiel, Mark Suster, and other VC Tweeted warnings directed at startup executives.
Billionaire hedge fund manager Bill Ackman predicted SVB’s collapse would spur an economic meltdown.
In the afternoon, Reddit articles appeared, such as “Silicon Valley Bank jumping off a cliff down 62%...”, which was in turn cited in Twitter posts and vice versa. This sparked worries about both default and contagion.
March 10th:
In the morning, GarryTan, CEO of the Y-Combinator, appeared on CNBC and called the SVB fallout an "extinction level event for startups.”
Images of lines forming outside SVB offices of depositors seeking cashier’s checks appear on Twitter, Facebook and Instagram. (See reference above to bank line in the 1930’s—most of these depositors were disappointed.)
Silicon Valley Bank Collapses on Spotify with Dan Primack and Rajan Roy.
Episode 119 of the All-in Podcast (#60 on the Top 100 Podcast list) is released, featuring a cast of heavy-hitters, to include: former Facebook senior exec Chamath Palihapitiya, Jason Calacanis of Weblogs and the Silicon Valley Reporter, among others, David Sachs, co-founded PayPal, Geni.com, Yammer, and Zenefits, and former Google executive and Climate Company founder David Friedberg. Entitled “Silicon Valley Bank implodes: startup extinction event, contagion risk, culpability, and more,” the crew took a deep dive into SVB’s balance sheet, who or what is to blame (venture debt being a big factor), contagion risk, second- and third-order effects, and what are the implications for the VC industry. The episode generated thousands of comments.
Andy Payne’s excellent tactical plan appeared among many other suggestions and plans on LinkedIn and Twitter.
March 11th:
The PIVOT Podcast with Kara Swisher and Scott Galloway. Kinda late and melodramatic, but interesting as usual
While the SVB collapse—as well as Signature’s addition to the fray and any other eventual participants—bears many of the hallmarks of its distant cousins from the 1930s, the sheer speed, ease, and ubiquity of communication in 2023 means that ideas, both good and bad, helpful or not, are mere keystrokes from instant dissemination around the world. It is a challenge that our forebears never faced, and today’s treasury secretary and Fed Chairman, and the tech community, confronts with all kinds of perils.
Accept as true the adage: that which gives — instant communications, ease of information gathering and sharing — can also take away.