2 min read

things i think about while powerwashing 28

If you drive down Tasman in Santa Clara, you'll see a sign saying "SVB" in turquoise letters, surrounded by a fairly deep (and now empty parking lot). That used to stand for Silicon Valley Bank, a financial institution founded in 1983 allegedly over a poker game that specifically targeted loaning money to tech startups.

As you might know, 2022 was a bad time to be lending money to tech startups.

The Wikipedia page for Silicon Valley Bank turned its' "its'" into "was"'s, and now we are blessed with the largest bank to fail in the United States since 2008. So what happened? And is this a big deal?

The following sections involve vast oversimplifications, there's a much better blog post linked at the end. I am an amateur blogger, please read more on this to get better info.

So first: yes, this is a big deal. A lot of startups had their money in this bank. And startups cost a lot of money! They don't bring in enough money to turn a profit, so they "burn" through their VC-raised money at a certain rate (aka burn rate).

It used to be, that when times were good, startups would just go get more money! It's a little deeper than that, but essentially interest rates have been really low for the past few years, so it was really easy to go through more funding rounds (VC money, IPOs, etc.). But now with the interest rates rising (and possibly rising higher in the future), VCs are less likely to give out money and are seeking more stable investments. This led to startups probably trying to go get their money from the bank, leading to a Toilet Paper Situation.

The Toilet Paper Situation only happens during times of great panic, like when the pandemic first started. Stores usually only stock enough toilet paper so that the people who need the toilet paper can get theirs. But in a panic, everyone is going to go get their toilet paper at once, leading to the store having no toilet paper for people who need it.

This is what happened to SVB! This situation is known officially as a bank run but honestly it's funnier to think about it in the toilet paper context. Some startups panicked, they withdrew all their money, SVB now has no money and actually owes money.

This is a huge oversimplification, so read this post.

So what happens next? Well, the FDIC has stepped in and seized control. They're probably looking for someone to acquire everything from SVB, handle the payouts, then drop it all. What the FDIC does NOT want to happen is to pay out the $250K that each account is insured for (there are ways to get more than $250K insured but I think there will be a significant amount of money lost either way).

And hopefully, no one who works at a startup gets laid off.

I also thought that this was entirely a local problem. Nope! Apparently the startup scene in Austin is also going through it.

Life's crazy, startup life is crazy, we live in unprecedented times with macroeconomic headwinds. Oh well!

pet of the week

Submitted by Stephen Davis. Courtesy of the Davis family.

Something about this photo sends me. This little beagle-german sheperd mix just splayed out, exhausted from playing all day long. Please send me more pet photos to be included in this sporadically consistent weekly newsletter.