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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’

#71

Post by erenyeager »

varispeed wrote: post #16

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…

I don’t know, I like your reasoning but isn’t it more complicated than that? Bootstrapping imo is the best way to go if you don’t wanna give up stake but the reality is that going to VCs makes much of the process much easier (funding). Without the VC system, would we have to go back to a traditional loan process? I find that backwards and I would assume founders will like getting money from VCs better than banks at the start (after all, most loans may not even be approved if you’re starting out).

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

#72

Post by fblp »

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]

I'm sure some VC firms also encouraged their portfolio to bank with SVB. They were regarded as the most "startup friendly" bank.

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

#73

Post by ouid »

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…

There is a hard line between insolvency and illiquidity. Illiquidity can be solved by borrowing at the federal funds rate.

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

#74

Post by wbl »

mitthrowaway2 wrote: post #68
wbl wrote: post #63

Earlier quoted context omitted.

Please explain to me what you think rates would have needed to do given that there was a massive decrease in economic activity due to a pandemic followed by inflation.

IMO? Overnight term rates should have been zero from 2020 to about July of 2021, then allowed to rise by 0.25 per month to perhaps about 3.5%. Long-term rates should have been left to float with the market, pricing in the expected risk of inflation. Not that my opinion matters, since I wasn't in charge.

That still leads to losses on long term treasuries. That's what it means to raise rates.

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

#75

Post by toast0 »

mmmmmbop wrote: post #54
gumballindie wrote: post #21

Earlier quoted context omitted.

This comment is underrated. Basically what these businesses do is they sell their products at a dumping cost. If that practice is illegal for physical products then so should it be for software.

I agree with the sentiment, but it's not correct that price dumping is illegal for physical products. Trade treaties and WTO rules cover dumping in international trade for obvious reasons, but to my knowledge, there's no law in the major western jurisdictions covering domestic dumping.

Domestic dumping may be prohibited as predatory pricing under anti-trust, depending on the circumstances, including the pricer needing to have market power.

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

#76

Post by btown »

mmmmmbop wrote: post #54
gumballindie wrote: post #21

Earlier quoted context omitted.

This comment is underrated. Basically what these businesses do is they sell their products at a dumping cost. If that practice is illegal for physical products then so should it be for software.

I agree with the sentiment, but it's not correct that price dumping is illegal for physical products. Trade treaties and WTO rules cover dumping in international trade for obvious reasons, but to my knowledge, there's no law in the major western jurisdictions covering domestic dumping.

https://www.ftc.gov/advice-guidance/competition-guidance/gui... notes that there are dumping restrictions, but that courts rarely find firms in violation.

Asking ChatGPT "What is the case law around single-firm predatory pricing?" provides a number of examples, including the tests used by various Western court systems. (Though do note that ChatGPT is not a lawyer, and this is not legal advice!)

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

#77

Post by jjeaff »

LapsangGuzzler wrote: post #30
mitthrowaway2 wrote: post #28

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…

I haven't seen a lot of evidence yet that SVB was necessarily pursuing a risky strategy. Certainly, proceeding at all without a risk manager is risky in and of itself. However, the "risky" investments that I have heard described thus far are mostly treasury securities. They simply had too many for a time horizon too far out. There is no bank right now that could withstand a withdrawal rate of nearly 50% of total assets in a single day.

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

#78

Post by tripletao »

arcticbull wrote: post #50
cwilkes wrote: post #48

Earlier quoted context omitted.

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 b…

I'd tend to agree that expecting depositors to police their banks is bad policy. It would be better to make that policy change explicitly though, by insuring all deposits, rather than by slouching into it with ad hoc rescues like here.

I agree there's no moral hazard as to the SVB shareholders, since they got zeroed. There is a moral hazard as to the shareholders of other banks, who will benefit from the new lending program in proportion to the amount of bad interest rate risk they took.

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

#79

Post by danielmarkbruce »

akira2501 wrote: post #41
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.

It's also questionable that they could account for their bonds the way they did. A company isn't allowed to just decide to put something in the "held to maturity" bucket - they need to both intend to do it and actually be capable of doing it. Given the depositors in question, I don't think they ever met the bar.

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

#80

Post by mrtksn »

guestbest wrote: post #3

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.

Completely agree, I'm sick and tired of capital flooding the markets until everything else dries out so their products prevail due to the sheer reality that you can't compete against "free". At first it may seem like encouraging innovation but it ends up with stagnation once the battle over land grab is over.
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