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I just received an email from one of our investors, sent to all portfolio companies, advising everyone to transfer all of their money out of SVB at 8:30am tomor

• thepasswordis 4y ago
  That sounds remarkably similar to a crypto exchange blowing up.
  • koromak 4y ago
    its almost like making bets with money you don't actually have yet is a bad idea
    • borski 4y ago
      This is literally the definition of fractional reserve banking, used by almost every bank worldwide.
      • cj 4y ago
        You're right, but that doesn't necessarily make it a good thing. As a consumer (or a business client in the case of SVB), how does it benefit you that the bank doesn't simply hold your deposits in a figurative safe somewhere? At a minimum, I wish I could say it benefits us by banking being free. Lending could be opt-in. There could exist banks who charge a premium for simply being the custodian of your money. (These must already exist) Fractional reserve makes money easily available to those seeking money they don't have, at the risk of depositors whose money they're putting on the line. (For better or worse. I'm not for or against it. I'm certain there are massive benefits to the system. But the reality is the average depositor probably doesn't realize their bank deposits aren't actually theirs - and that's why we have the FDIC)
        • borski 4y ago
          Loans are what drive the economy. I’ve used loans for cars and my home, as have most people in the country. Many people make decisions based on income, and not on cash they already have, as few people have massive accumulated cash wealth. Loans are not always a bad thing.
          • omgwtfbyobbq 4y ago
            Loans aren't a bad thing as long as they are effectively collateralized. If someone misjudges the value, volatility, etc, of collateral used for loans, those loans could be a bad thing if the borrower stops paying.
            • borski 4y ago
              Sure. That’s true of any financial instrument.
        • stocknoob 4y ago
          You’re looking for a brokerage.
      • malermeister 4y ago
        Maybe the whole economic system just isn't viable, as we've seen time and time again?
        • borski 4y ago
          Citation needed. Also, I’m all ears for a viable replacement that doesn’t devolve into autocracy or government-endorsed corruption, and still allows for taking risk and forward progress.
          • malermeister 4y ago
            https://en.wikipedia.org/wiki/Great_Depression https://en.wikipedia.org/wiki/Great_Depression https://en.wikipedia.org/wiki/Great_Recession https://en.wikipedia.org/wiki/Great_Recession Here's some citation for ya. As for viable replacements that allow for forward progress: https://en.wikipedia.org/wiki/Workers%27_self-management https://en.wikipedia.org/wiki/Workers%27_self-management (Also, for that matter, it's not like capitalism doesn't tend to devolve into autocracy and corruption)
            • epgui 4y ago
              These links do not support your claims.
            • borski 4y ago
              That there have been downturns is not an indicator that capitalism does not inherently work in the long term. There are always downturns, no matter the system.
              • anon84873628 4y ago
                Henry George would argue that it's the landlords, not the capitalists, who are causing the downturns :)
            • astrange 4y ago
              Pretty sure worker-owned companies still need investment and loans.
      • UncleOxidant 4y ago
        "its almost like making bets with money you don't actually have yet is a bad idea" Banking is supposed to be a very boring business (at least under Glass-Steagal-like regulation). Making "bets" with money they don't have isn't something retail banks are supposed to be doing. Yes, we know that some banks were doing this prior to the '08 GFC, but wasn't that supposed to have been reigned in by the reinstatement of Glass-Steagal-like regulation since then? (of course, there is some distinction between retail banks and investment banks, is SVB the former or the latter?)
        • borski 4y ago
          Loans are bets. You’re limiting bets to investments, but lending money is a bet that the person you lent it to will be able to pay it back; albeit a properly collateralized bet with solid underwriting, hopefully. But it’s certainly not a 100% guarantee. Retail banks absolutely underwrite loans.
          • za3faran 4y ago
            Maybe running an economy on interest bearing loans was not a good idea after all, who would have known? We've had checks notes only a few thousand years to know that.
      • soVeryTired 4y ago
        Fractional reserve banking isn't a thing anymore.
        • borski 4y ago
          What? This is literally how nearly all banks around the entire world work.
          • MatteoFrigo 4y ago
            The Bank of England explains why the fractional reserve mental model of banking is not really accurate. See https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf?la=en&hash=9A8788FD44A62D8BB927123544205CE476E01654 https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
  • spaceman_2020 4y ago
    This is the point where you realize most modern startups are built on the same shaky promises as crapto.
    • senttoschool 4y ago
      What? Not even remotely the same.
      • spaceman_2020 4y ago
        "our unprofitable startup that sells to other unprofitable startups which is also coincidentally funded by the same VCs and needs annual cash infusions just to pay the bills is surely built on strong financial foundations, unlike all those pesky crypto companies that sometimes actually make profits".
  • shalmanese 4y ago
    We wish that's what a crypto exchange blowing up was like! Every exchange crisis is either a liquidity crisis or a solvency crisis, we keep on wishing crypto exchange crises are liquidity crises but they inevitably get revealed as solvency crises where crime or incompetence means the money everyone thought was there is just flat out gone.
• rabidonrails 4y ago
  Maybe you'd say it's worth the risk, but founders should be very careful about making transfers from accounts owned by their business to their personal accounts because this is literally the definition of embezzlement. I'd speak to your accountant and get their blessing first.
  • cj 4y ago
    Citing the justice department’s website: “The requirement that the defendant act with the intent to deprive the owner of his property makes embezzlement a specific intent crime.” Meaning your safe as long as your intent is not to steal the money. But if your concerned definitely ask your lawyer. (Accountant won’t be able to provide that sort of legal advice)
    • mike_d 4y ago
      I think what the person you responded to was trying to point out is that commingling business funds with personal funds is not a wise strategy, even if you believe the companies assets are at risk. For one thing you immediately open yourself up to personal liability if any issues arise where someone may sue your company. Such a transfer could be considered a disbursement by the IRS, requiring you to pay taxes (or at least hire lawyers to clear up the issue). It may also be outright theft or look damn close to it in the eyes of your board or employees. Not to mention complicating claim issues for your company if the bank does become insolvent. You should absolutely talk to your CFO, board, accountant, and lawyer before taking such a drastic step.
      • cj 4y ago
        Yes you should do all those things if you’re comfortable risking all of your company’s money on a bank about to collapse which could happen in a matter of hours. the legal system is not black and white. You go to court and there’s a judge and possibly a jury that hears your story, and decides if what you did deserves punishment. Attempting to safeguard your company’s assets hours before a bank’s potential collapse will garner sympathy from just about everyone. I understand your points; but people banking with SVB may not be able to run this month’s payroll if they don’t move their money. That will cause more problems than anything else we’re talking about right now. Unfortunately a bank run is very likely due to VCs mass emailing portfolio companies. I hate to be yet another person promoting this, but it’s always best to be the first ones out during a collapse.
• tootie 4y ago
  But why? Because everyone else is doing it? Is this a power play by another bank? Is there an actual structural problem at SVB?
  • xur17 4y ago
    Tbh, yes - a bank run by definition occurs if "everyone else is doing it", and in this case it sure seems like we're moving in that direction. And it's beneficial to be the first out, with no real benefit to waiting and seeing.
    • nonethewiser 4y ago
      But what started it?
      • UncleOxidant 4y ago
        Lots of speculation right now, but we'll eventually find out. Like Buffet is fond of saying: you find out who is swimming naked when the tide goes out.
      • DeRock 4y ago
        Liquidity crunch, probably as startups are drawing down cash to pay bills/payroll/interest payments… Trying to convert eg. long term treasuries held by the bank to cash for satisfying customer withdrawals takes time, and has costs. If too many customers attempt to do this in a short period of time, you start having to delay withdrawals, panic spreads and the process escalates and feeds back on itself.
    • chii 4y ago
      > with no real benefit to waiting and seeing. what the bank could do is announce a period of time, where you'd get a much higher interest payment for keeping the deposits in. So at least a portion of people would prefer getting the interest payments, rather than withdraw, and thus give breathing room. The bank might suffer a loss in the short term from paying out the interest, but would not collapse due to the (now non-existent) run.
• willmadden 4y ago
  Telling everyone to withdraw their money at exactly the same time is a great way to cause more damage to those startups by creating an actual bank run. Do you now if that "investor" is short Silicon Valley Bank's stock, took out long puts, or has other conflicts of interest? Because if so, they just committed a felony. That "investor" had better hope one of the recipients doesn't forward the email to the SEC. Are you short Silicon Valley Bank, by chance?
  • danielmarkbruce 4y ago
    It's a pretty standard example of a prisoners dilemma. Each VC telling their companies to pull is the right thing for them in isolation.
    • willmadden 4y ago
      The fractional reserve banking system is a perpetual prisoner's dilemma, and VC's are smart enough to know this. The same VC funds influence all of the startups with deposits at SVB. This happens on the tails of Silvergate, where the major exchanges (who also share investors and have overlapping board control) coordinate a bank run, while Elizabeth Warren did everything she could to rug that bank, by spreading FUD and also by forcing them to pay back their emergency loan. This entire thing is honestly more than a little fishy. Call me crazy, but it feels like a controlled demolition and open financial warfare on the startup and crypto industries. It will be interesting to see if there isn't new regulation that gives the government far more power conveniently sitting on the shelf that's about to be pushed through. It could just be unlucky revenue management at these banks, where they locked up way too much of their deposits in fixed rate bonds before the Fed decided to jack up rates, but that begs the question... why didn't the Fed know that raising rates this aggressively would cause bank failures? The Fed should have been aware of the bank's position with Treasuries. On some level this is a controlled demolition. It's just a matter of who is doing the demolition.
      • danielmarkbruce 4y ago
        >> Call me crazy Crazy :) It's a pretty bog standard bank run. Bank takes a stupid risk, blows up. We see less of them now because of the FDIC, but most of SVB's deposits were non-insured so it was almost an 1890's style bank run. There was nothing "controlled" about it.
• ttul 4y ago
  I agree. Consider all the tech companies with SVB credit facilities. Guess what? Those facilities are going away right now.
• FanaHOVA 4y ago
  I will not be giving advice or opinions, but please don’t post anecdotes as facts to generate panic. This isn’t what most VC funds are doing.
  • Danieru 4y ago
    It costs what, a transfer, a bit of explaining to the accountants, and a few days lost interest, to protect your company if SVB pulls through. If you risk it and SVB goes into receivership: you might fail to make payroll. You might not have money for the taxman. You might default on liabilities. These are not balanced risks. Any executive which does not pull their company's money to surefire safety is being negligent. Your duty is to your employees, your shareholders, and your suppliers. Not the owners of SVB, or to make the FDIC's job easier.
    • redwood 4y ago
      It's musical chairs once the panic sets in... that's why folks are trying to discourage panic. Another bank will likely swoop in, probably no need to panic
      • ptero 4y ago
        Musical chairs for assets currently in SVB or at other banks? If SVB, it is probably too late to stop it, that game has already started and once a bank run starts only a miracle (or a powerful external actor) can stop it. If other banks I do not see a risk of contagion. And should the contagion spread to major banks feds will certainly step in (to save our core banking system, blah blah). My 2c.
      • cj 4y ago
        •probably no need to panic” is accurate. But at least with my company’s money, there’s no room for “probably” when it comes to my ability to pay our employees. Our company will be dead if we can’t make payroll or if we can’t pay our credit card bills. That’s not something any CEO wants to risk just to avoid a bank run. A CEO has a fiduciary responsibility which includes making decisions that are in the best interest of the company. Taking no action at this point is just irresponsible.