OPINION
GUEST ESSAY
I Was an S.V.B. Client. I Blame the Venture
Capitalists.
March 16,
2023
By
Elizabeth Spiers
Ms. Spiers,
a contributing Opinion writer, is a journalist and digital media strategist.
In 2016, I
started a New York-based creative agency that specialized in branded content.
Among creative agencies, the trend at the time was for names that sounded like
punk bands, and I unfortunately chose the Insurrection. As of last week, the
only thing that aged worse than the name was my choice of bank: Silicon Valley
Bank, which has now become the most spectacular example of a bank failure since
the 2008 financial crisis. (I briefly lost access to our company’s funds, but
I’m fine; my deposits were low enough to be covered by F.D.I.C. guarantees.)
There’s
plenty to say about how the bank brought this about — making risky investments,
issuing communications that did more to alarm than explain. But as I hit
refresh on my account balance Monday morning, I was thinking of the
high-prestige venture capitalists who herded start-ups like mine to S.V.B.
They’re the reason the bank was so overloaded with risky clients, and they’re
also the ones who panicked at the first rumors of trouble and advised their
portfolio companies to flee, initiating the bank run that brought the whole
thing tumbling down.
On Saturday
an entrepreneur named Alexander Torrenegra, who was an S.V.B. depositor for two
companies as well as his personal accounts, explained what happened on Twitter.
“Thursday, 9 AM: in one chat with 200+ tech founders (most in the Bay Area),
questions about SVB start to show up.” he wrote. “10 AM: some suggest getting
the money out of SVB for safety. Only upside. No downside.”
It’s easy
to see how a whisper network of a few hundred C.E.O.s — all convinced they have
exceptional vision, all working themselves into a panic — could spiral out of
control. But what happened in that chat is an extension of the fundamental way
that these venture capitalists operate, which is groupthink on a staggeringly
consequential scale.
Top-tier
companies like Andreessen Horowitz, Sequoia Capital and Kleiner Perkins subject
candidates to a rigorous screening process that ensures that only the strongest
founders leading the most promising businesses proceed to the next level. Or
that’s what I once believed, anyway. But the screening process places
significant emphasis on culture fit, which is industry-speak for whether a
founder fits into the venture capital company’s full portfolio of businesses
and conforms to its ideas about how a founder is supposed to look and behave. A
founder’s ability to navigate this process is considered a good indicator of
the company’s success. Unfortunately for women and people of color, culture fit
often boils down to being a white male engineer with a degree from an elite
university.
Some
screening mechanisms are more subtle, like whether the V.C.s are already in
your professional network or one or two degrees removed. The industry line is
that relationships will help founders attract capital, talent and business
partners. True, but the result is a largely homogeneous and even
self-reinforcing community that’s difficult for outsiders to crack.
It’s this
sort of insularity, emphasis on existing relationships and reliance on
intangible measures of competency that fueled last week’s bank run. The V.C.s
expect the companies in their portfolio to use approved vendors. When it comes
to legal counsel, that generally means tech-friendly law firms like Morrison
& Foerster and Wilson Sonsini. When it comes to banks, it meant S.V.B.
S.V.B., in
turn, assessed its clients’ creditworthiness in part by who their funders were.
As my colleagues and I saw, an investment from a top-tier V.C. could be the
ticket to a package of favored services, including things like home mortgages
for the founders of these start-ups.
I opened my
account at S.V.B. in 2017, when I had meetings lined up with some top-tier
V.C.s to raise money for a digital media company. Like everyone else who heads
to Buck’s of Woodside (a favored venue for early-stage deal making) with a deck
and a dream, I tried to anticipate the screening mechanisms and make sure I
passed. And despite the fact that I was not a first-time founder, had worked in
tech and tech-adjacent companies and was decently well networked, I suspected
they might regard a 40-year-old woman without an engineering degree as not
quite the culture fit of their dreams. I wasn’t contractually obligated to bank
with S.V.B., but as with so many other unspoken norms, I was aware that I would
be evaluated by my choices.
Disaster
has now struck, but I don’t see any public introspection from the investment
community participants who both helped create the dangerous conditions and
triggered the avalanche by directing portfolio companies to withdraw en masse.
The biggest
supposed geniuses of Silicon Valley could have chosen to remain calm and use
their influence to work with the bank and help maintain stability in the
market. When S.V.B. disclosed its losses last week, it was in the process of
restructuring its portfolio to include Treasuries with shorter-term maturities,
which would have helped. It had a commitment from General Atlantic — a top-tier
company — to help shore up its balance sheet. The bank was doing exactly what
it should have done under the circumstances, and had the depositors kept their
money there, it could have stabilized as the restructured portfolio became more
profitable.
Instead,
people panicked. The venture capitalists chose a path that would be disastrous
for their industry, freezing up capital, spooking investors and reducing the
favored financial institution to rubble. Then they had the temerity to go on
social media and congratulate one another for their quick thinking. Upfront
Ventures’ Mark Suster, one of the few V.C.s who saw the potential damage of a
bank run and publicly urged his colleagues to stay calm, told TechCrunch on
Friday, “I’m seeing emails from V.C.s” to their limited partners, “and they are
forwarding these things like, ‘Aren’t I super smart?’”
The hubris
of high-profile libertarians who howl for regulatory intervention (“Where is
Powell? Where is Yellen? Stop this crisis NOW,” tweeted Craft Ventures’ David
Sacks) after previously coming out against it is all the more galling. I expect
that as soon as the system stabilizes, they’ll all develop amnesia and return
to insisting that government intervention destroys innovation.
They are
not the only people to blame, of course, but no bank is built to withstand
simultaneous withdrawals from all its depositors. One S.V.B. executive told The
Financial Times that its biggest risk was “a very tightly knit group of
investors who exhibit herdlike mentalities.” The executive continued, “Doesn’t
that sound like a bank run waiting to happen?”
I’ll keep
my S.V.B. debit card as a souvenir, partly because the giant arrow logo points
in the opposite direction that it’s supposed to go into a card reader — an
example of a design that obviously went through no user testing. It’s also a
reminder that successful people aren’t always the best decision makers.
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