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Pardon my ignorance, but why would VC backed companies not have CFOs and general VC advice against putting all or even a majority of their funds in a single bank? Why would they not split it among several mid to large sized banks? [Edited for typo]
I suspect vcs were telling the companies to bank with svb as some sort of mutual backscratching.
Earlier quoted context omitted.
> BTW you can blame the Fed for low interest rates, but it's the yield curve inversion and long rates which caused the liquidity/solvency problem not the short term rate hikes Can't we sort of blame the Fed for that [yield curve inversion and long rates] too? It undertook massive quantitative easing during the pandemic, which depressed the yield of long-term bonds such as those bought by SVB. Perhaps if it hadn't don…
> Can't we sort of blame the Fed for that too? No. SVB chose to pursue a risky investment strategy with no risk manager at the helm for months, the banking equivalent of stupidly storing all of your nitrous fertilizer in one place and then being surprised when the whole thing blows up. SVB made numerous, critical mistakes in their management. If anything, one could argue the Fed enabled this stupidity by keeping rate…
Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…
Earlier quoted context omitted.
I also think that tech is moving very fast, and startups with 10+ years of unprofitable existence without any potential exit are going to get disrupted by newer players. The current crop of startups have largely been pioneers, but usually, the settlers take away the bulk of the spoils. In India, Uber got everyone used to the idea of app based cabs. Now newer players are eating away Uber’s lunch with newer models and…
> startups with 10+ years of unprofitable existence without any potential exit are going to get disrupted by newer players. It depends how unprofitable. Well-established products like Twitter and Reddit are big, have an established user base, and while not particularly profitable, I also don't see them getting disrupted by a rising competitor.
Them not being very profitable is almost like a moat in itself - not only is it hard to displace them, it's probably not profitable to do so either.
Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…
Just making sure I understand your point here, are you just against "banking"? Unhedged duration risk w/ LOLR backup is essentially "the banking business".
What's the moral hazard? The equity is wiped out, most of the debtors are wiped out.
The only moral hazard I see is we've disincentivized individual depositors from assessing the financial strength of their banks. To me, this is a good thing. I hope we can bring similar moral hazards to choosing a plane to fly on, bridge to cross, building to enter, restaurant to eat in, hospital to go to, etc.
Is the only common thread between SVB and the haircut that it's inspiring LPs to look more closely at their investments?
As an independent developer (misv) working on my projects part time out of necessity, I look forward to a tech market where well funded businesses give away their software for free until they establish a monopoly mostly disappear. I don’t think this will do it, but it helps make me think they won’t have spigots of easy money flowing in to their accounts.
Startup valuations had gotten too rich. Now they're coming down to more reasonable levels, in fits and starts. VCs and their LPs don't want the write-offs. They're painful. But ultimately, I think the write-offs will prove healthy.
> But ultimately, I think the write-offs will prove healthy.
Yeah this was happening with or without the SVB collapse. In fact, I really don't see much of a correlation to any of this (between lower valuations and the SVB collapse). But I couldn't read the article as it's behind a paywall and the archive.is version got cut off.
Valuations from late 2020 to early 2022 were so radically insane for later stage startups that we will likely see a mass extinction event in another 12-18 months when they all either run out of money, or shrink by 90%+. Series A and B companies getting 100-200x on revenue is simply unimaginable for me even in the best of times. VCs that invested at these valuations are likely also going to die off as they'll be unlikely to raise future funds. Only time will tell.
The whole idea of venture capital comes from the broken taxation model. The people who actually produce things, you know doing the work and have knowledge how to do something are burdened with heavy taxation, because years ago, when companies had high headcount, it was a way to make companies pay taxes. Now that everything gets offshored, including work, that model doesn't work anymore, but politicians for known reas…
Or what is the alternative, if they didn't get their tax breaks they would do what? Stop wanting money? I don't think so
Pardon my ignorance, but why would VC backed companies not have CFOs and general VC advice against putting all or even a majority of their funds in a single bank? Why would they not split it among several mid to large sized banks? [Edited for typo]