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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’

#81

Post by rvz »

deltree7 wrote: post #12
gigatexal wrote: post #6

Good. All those 0% interest leveraged VC funds can go burn in a fire. They pumped stupid money into companies and inflated valuations. Now that things are getting saner with real interest rates above 0 and getting higher sanity will reign again in the markets.

It's delusional to think that this won't have effects on most HNers employment/salary. So be careful what you wish for

Don't care. It was all inflated salaries from unprofitable companies who depended on pumping VC cheap capital every month. They need to now show that they are profitable.

We also will now see which startups can afford to hire developers at over $350K/yr + bonus + stock options in an adverse, unfavourable market without VC capital. Oh wait...

   None.

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

#82

Post by xboxnolifes »

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.

People keep saying this, but I don't understand why they don't see the issue. Yes, shareholders got zeroed out of their SVB shares. But since there was no risk to playing with depositors money besides losing the business, which can fail in any number of other ways as well, there is no deterrent to taking on the large risk.

The optimal strategy to beat the competition is to edge toward more risk. And since you can get an edge by playing more risky, other banks will have to do as well to compete.

A traditional business, when edging toward risk, fails when they cannot get their customers to buy from them. Banks fails when they can't get their customer's money back to them. That's the big issue with the risk dynamic.

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

#83

Post by nafey »

jjeaff wrote: post #77
LapsangGuzzler wrote: post #30

Earlier quoted context omitted.

> 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 asse…

> However, the "risky" investments that I have heard described thus far are mostly treasury securities

You assume that all risk is default risk. The risk that SVB took wasn't that the US govt will default on its bonds. It was that the treasuries will lose their value in case of interest rate changes.

SVB bought billions of dollars of US treasuries which lost their value in the last year due to rate hikes. This showed up as unrealized losses on their balance sheet which spooked their depositors and precipitated the collapse.

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

#84

Post by lotsofpulp »

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…

> because years ago, when companies had high headcount, it was a way to make companies pay taxes.

What does this mean? Assuming you are referring to earned income tax, I do not understand how income tax is a way to make companies pay tax.

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

#85

Post by kasey_junk »

bagacrap wrote: post #58
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.

What's an individual supposed to do, pay for an audit of a bank's balance sheet? The bank had poor risk management, regulators were asleep at the wheel, depositors are blameless. Although I will say that a startup with millions in the bank should probably have a CFO.

Large deposit holders audit bank balance sheets as a matter of course. It’s a standard risk management function for corporate treasuries.

That it’s apparently news to a bunch of cash heavy depositors at SVB is one of the more revealing parts of the crisis to me.

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

#86

Post by WJW »

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.

Perhaps, but seeing the public outcry when docker tried to kill its free-for-open-source plan makes me think we'll see companies giving away software for quite a while.

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

#88

Post by dilyevsky »

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.

Right lets all just play silly accounting games breaking up your 100M into 400 individual bank accounts instead of doing something productive and just raising fdic limit to something sensible for a small-medium business

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

#89

Post by lvl102 »

Dr_Birdbrain wrote: post #70
lvl102 wrote: post #15

Can’t be the only one who thinks this is possibly a ploy by VC bros to make Fed blink on interest rate hikes. Only they could have triggered such a bank run and only SVB.

Interesting idea. If so, it was a risky gambit, and also they only get to do it once, because the next bank is bigger than SVB. Do they really care enough about lowering interest rates to play such a risky gambit, which can only be played once? Also we are coming on the debt ceiling limit at some point in the next few months, which might trigger a crisis of its own. If I were a VC I wouldn’t play my one-time hyper-ri…

Debt ceiling is a political game and VCs definitely have politicians under control.

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

#90

Post by landemva »

nostromo wrote: post #56
landemva wrote: post #51

Earlier quoted context omitted.

> not raising short rates would increase inflation Proxy war in eastern Europe, with USA dumping big $ there, is causing price rises.

Inflation was surging well before the Ukraine invasion.

The virus lockdowns ended and manufacturing supply chains have been clearing. Please tell us why price increases are continuing, instead of dramatically dropping.
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