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SVB collapse could mean a $500B venture capital ‘haircut’

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Re: SVB collapse could mean a $500B venture capital ‘haircut’

#41

Post by akira2501 »

kurthr wrote: post #8

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…

> 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

I blame the bank management. They left the risk management position open and spent way too much time, money and effort on marketing during that period of time rather than shoring up their shaky position.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#42

Post by gumby »

cs702 wrote: post #4

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.

> Startup valuations had gotten too rich.

What possible value is there for entrepreneurs of a secular reduction in valuations?

Currently those of us in tech are suffering due to the absurdities of the SaaS obsession.

Edit: I mean developing technology, what has to be called “deep tech” these days.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#43

Post by qwytw »

jgilias wrote: post #27
kurthr wrote: post #8

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…

You sound like you have a good grasp of this! What’s your take on the observation that historically after the yield curve inversion ends, it’s 3-6 months until a recession?

It's a correlation. Also a big part of the inversion is the fact the market expects the Fed to start cutting rates in 3-6 months. Of course historically this tends to happen at the beginning of recessions...

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#44

Post by JumpCrisscross »

kurthr wrote: post #8

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…

> have to plan to lose >20% of your deposits in a single day you're not a bank anymore

When you sell your liquid portfolio to Goldman at a $2bn loss and then announce non-binding equity commitments, you’re going to lose 20% of your deposits. Now that banks can borrow against the face value of their Treasuries, the same duration problem shouldn’t recur. (That said, we’re stuffing an ungodly amount of crap into the FHL bank.)

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#45

Post by arcticbull »

kurthr wrote: post #8

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…

> nor the moral hazard created by the bailout

There was no moral hazard created because bank shareholder equity got zeroed out.

Bank management and shareholders were not protected against the 'find out' phase.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#46

Post by Animats »

“There are enough zombie companies with frothy valuations that need restructuring, price discovery and of course re-tooling of their business models to a world of tighter credit, subdued revenue and higher rates,”

SVB has nothing to do with that problem. It's about higher interest rates. The end of free money for stupid stuff. Now companies have to make money.

So who's going down? TSLA, UBER, and RBLX already made it to the public markets; they're out of the VC sector. Those are the biggest ones. What are the remaining big money-losers still owned by VCs?

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#47

Post by eunos »

lr4444lr wrote: post #22

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]

From a reddit AMA (dont have the link sorry), IIRC small startups dont have enough manpower to hedge their finance and more or less discouraged to hire finance teams (just focus on your product!).

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#48

Post by cwilkes »

arcticbull wrote: post #45
kurthr wrote: post #8

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…

> nor the moral hazard created by the bailout There was no moral hazard created because bank shareholder equity got zeroed out. Bank management and shareholders were not protected against the 'find out' phase.

The moral hazard is that there isn’t a a limit to the $250k FDIC insurance so people that put money into the bank don’t have to care what the bank does.

So there’s no incentive to work with a bank that took the time and money to pass a stress test — in fact the one that didn’t bother to do any testing can give better terms as they aren’t spending money to be safe.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#50

Post by arcticbull »

cwilkes wrote: post #48
arcticbull wrote: post #45

Earlier quoted context omitted.

> nor the moral hazard created by the bailout There was no moral hazard created because bank shareholder equity got zeroed out. Bank management and shareholders were not protected against the 'find out' phase.

The moral hazard is that there isn’t a a limit to the $250k FDIC insurance so people that put money into the bank don’t have to care what the bank does. So there’s no incentive to work with a bank that took the time and money to pass a stress test — in fact the one that didn’t bother to do any testing can give better terms as they aren’t spending money to be safe.

I don't think it should ever be the depositors responsibility to figure out whether a bank is properly managing their risk backing your deposits. That's both intentionally meant to be opaque to depositors - you get dollars in an account, not share in an MMF for instance - and also, it is incredibly difficult for even professionals to evaluate. This is the responsibility of regulators plain and simple. And I'd argue by the FDIC taking this risk on now, moral hazard is still not a factor.
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