5 ms·

Can we quit with the blaming of VCs, especially without explanation? The management of SVB messed up massively, and some VCs noticed. They would have been ever

by amluto 4y ago

Can we quit with the blaming of VCs, especially without explanation? The management of SVB messed up massively, and some VCs noticed. They would have been every bit as insolvent if the VCs in question had kept their mouths shut, and if rates went higher they would have been even more insolvent, on account of being massively short interest rates.

endisneigh 4y ago
Aren't VCs the ones who told people to pull money out of SVB, there by causing this?
- rogerkirkness 4y ago
  The earnings call where they said they needed billions of dollars stat didn't help.
- colinmorelli 4y ago
  SVBs liquidity issues predate VCs telling portfolio companies to take cash out. They already had to liquidate securities at a $1.8B and sell equity to fill the hole in the balance sheet on Wednesday, which was the announcement that led to the run. SVB likely would have made it through the immediate term if companies did not pull out money en-masse. However, they were in fairly dangerous territory no matter what, and highly susceptible to the ongoing pattern of declining deposits (as burn rates remain high but new capital is not being injected at the same rates it was 18 months ago). All that said, there were companies (not VCs) flagging SVBs risk on the weeks and months prior to this incident. Some were already pulling money out, albeit much more slowly. The very nature of bank runs is that as soon as the fundamental trust that we can withdraw tomorrow is gone, everyone wants to withdraw today. That can, as we just saw, happen in a very short period of time. Once that happens, it is objectively in each individual party's best interests to get money out. So sure, you could say that everyone should have just stayed put and not reacted. But in doing so, you'd be asking depositors in a bank that just announced they were unable to meet liquidity obligations to keep their money where it is, and that as long as everyone else did the same, then we'd all be fine, knowing that: 1. We would still likely have faced problems in the months and quarters ahead, and 2. That if enough of them did not heed the advice, you'd be caught holding the bag and unable to pay employees or vendors So I'm not quite sure what those blaming VCs were expecting here. Would you leave your money in a bank with demonstrable liquidity issues?
- acomar 4y ago
  the bank was already experiencing a slow run as startup funding dried up. SVB got hit by interest rates twice - once because the value of their assets fell and a second time because the money spigot into tech turned off and a huge influx of deposits turned into steady net-withdrawals. they managed their risk awfully.
machina_ex_deus 4y ago
Oh don't get me wrong, I do blame the bank even more. But to pretend like VCs didn't have huge interest in this blowing up in the worsts possible way, is just shutting your eyes. They are such bad actors, their words were all pretending this is something bad, but their actions weren't to recapitalize the bank but to let it blow up intentionally, while spreading FUD. They made a very successful gambit here that they could blow the system up to get what they want (rate hikes stopped). And they won with that gambit. If they get away with this, this gambit to them was totally worth the risk that the Fed won't chicken out. It's a case of murdering and keeping the inheritance. If I were the Fed, I would see this as a jackpot that finally the rate hikes are creating deflation in the best possible location and continue straight ahead. This is even better deflation than you can get by rising rate hikes for everyone.
- carlosdp 4y ago
  > Oh don't get me wrong, I do blame the bank even more. But to pretend like VCs didn't have huge interest in this blowing up in the worsts possible way, is just shutting your eyes. What are you talking about? What possible interest would they have in killing the by far best capital partner they've ever had (and maybe will ever have had)? The death of SVB makes things significantly harder for VC and startups in the future.
- djbusby 4y ago
  Are rare hikes stopped?
- pbourke 4y ago
  > their actions weren't to recapitalize the bank As I understand it, VCs manage pools of money that are structured as limited partnerships. Each pool has an investment objective, and presumably “recapitalize a failing bank” is not one of them. Any VC who did this would probably have been sued by their investors.
- birdyrooster 4y ago
  So you are saying the bank ceo was in conspiracy with vc heavy weights to tank the bank at the expense of their startups who bank there? Made the CEO buy long term bonds right before a bank run?
peteradio 4y ago
Maybe we need to understand how management came to the investment decisions they did? Surely those kinds of decisions are well documented. I'm concerned the banks clientelle was too intertwined with the banks decision making.
ajross 4y ago
> The management of SVB messed up massively, and some VCs noticed. They would have been every bit as insolvent if the VCs in question had kept their mouths shut I keep saying this, but "The management of SVB" was a core part of the VC ecosystem. These weren't remotely separate entities. This bank was being run like a cartel, not a competetive service provider in an efficient market. And the VC's were, 100%, in on it. Exactly how, I suspect, is going to be revealed in the coming months.
- amluto 4y ago
  If I had to guess, this failure was neither complicated nor involved any sort of conspiracy on the part of the VS. Imagine you run a largish financial company. Over the course of a year or two, your customers like your service and ask you to hold on to a few tens of billions of dollars for them. And they only ask for 0.20% interest. Wow! You could invest this money in the usual money-market things (short term treasuries, etc), and earn very little money. Still plenty in the grand scheme of things (you're multiplying by tens of billions!), not you see dollar signs in your eyes and want more. And you look at the yield curve: https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2021 https://home.treasury.gov/resource-center/data-chart-center/... Wow, you can get 2% net if you buy long-dated treasuries, and 2% of tens of billions is hundreds of millions of dollars a year! And those dollar signs in your eyes get really big and you ignore the fact that this shiny yield curve is in part because no one sensible actually expects rates to stay low forever. And you also think "wow, this is such a good deal that I'm not going to think about the fact that a long-dated treasury is also a short bet on interest rates". So you decide to pull the trigger and buy these things with customer money. And then the plot actually gets a bit nefarious, because you discover that this will violate Basel III. So you lobby Congress to exempt you, and you succeed, and you go for it. And you make a killing, at least until it blows up completely. (The whole "liquidity" story is a red herring here. If SVB had been solvent, liquidity would likely have appeared. But SVB was actually insolvent, and no one really wants to lend money to an insolvent institution.) If the VCs had actually been paying attention, I bet some of them would have said to their portfolio companies "here are a few million dollars in capital -- kindly store it in a Basel III-compliant bank or maybe a money market operated by one of the big players" and not "SVB is down the road and they're great!". Because the VCs were not playing the "screw up the Fed's monetary policy next year" game -- they were playing the "throw lots of money at portfolio companies and hope some of them make it big" game.
mindslight 4y ago
No. Can we quit trying to shoehorn mutlifaceted situations into having one single cause to the exclusion of all others?

by amluto 4y ago

endisneigh 4y ago

Aren't VCs the ones who told people to pull money out of SVB, there by causing this?

rogerkirkness 4y ago
The earnings call where they said they needed billions of dollars stat didn't help.
colinmorelli 4y ago
SVBs liquidity issues predate VCs telling portfolio companies to take cash out. They already had to liquidate securities at a $1.8B and sell equity to fill the hole in the balance sheet on Wednesday, which was the announcement that led to the run. SVB likely would have made it through the immediate term if companies did not pull out money en-masse. However, they were in fairly dangerous territory no matter what, and highly susceptible to the ongoing pattern of declining deposits (as burn rates remain high but new capital is not being injected at the same rates it was 18 months ago). All that said, there were companies (not VCs) flagging SVBs risk on the weeks and months prior to this incident. Some were already pulling money out, albeit much more slowly. The very nature of bank runs is that as soon as the fundamental trust that we can withdraw tomorrow is gone, everyone wants to withdraw today. That can, as we just saw, happen in a very short period of time. Once that happens, it is objectively in each individual party's best interests to get money out. So sure, you could say that everyone should have just stayed put and not reacted. But in doing so, you'd be asking depositors in a bank that just announced they were unable to meet liquidity obligations to keep their money where it is, and that as long as everyone else did the same, then we'd all be fine, knowing that: 1. We would still likely have faced problems in the months and quarters ahead, and 2. That if enough of them did not heed the advice, you'd be caught holding the bag and unable to pay employees or vendors So I'm not quite sure what those blaming VCs were expecting here. Would you leave your money in a bank with demonstrable liquidity issues?
acomar 4y ago
the bank was already experiencing a slow run as startup funding dried up. SVB got hit by interest rates twice - once because the value of their assets fell and a second time because the money spigot into tech turned off and a huge influx of deposits turned into steady net-withdrawals. they managed their risk awfully.

machina_ex_deus 4y ago

Oh don't get me wrong, I do blame the bank even more. But to pretend like VCs didn't have huge interest in this blowing up in the worsts possible way, is just shutting your eyes. They are such bad actors, their words were all pretending this is something bad, but their actions weren't to recapitalize the bank but to let it blow up intentionally, while spreading FUD. They made a very successful gambit here that they could blow the system up to get what they want (rate hikes stopped). And they won with that gambit. If they get away with this, this gambit to them was totally worth the risk that the Fed won't chicken out. It's a case of murdering and keeping the inheritance. If I were the Fed, I would see this as a jackpot that finally the rate hikes are creating deflation in the best possible location and continue straight ahead. This is even better deflation than you can get by rising rate hikes for everyone.

carlosdp 4y ago
> Oh don't get me wrong, I do blame the bank even more. But to pretend like VCs didn't have huge interest in this blowing up in the worsts possible way, is just shutting your eyes. What are you talking about? What possible interest would they have in killing the by far best capital partner they've ever had (and maybe will ever have had)? The death of SVB makes things significantly harder for VC and startups in the future.
djbusby 4y ago
Are rare hikes stopped?
pbourke 4y ago
> their actions weren't to recapitalize the bank As I understand it, VCs manage pools of money that are structured as limited partnerships. Each pool has an investment objective, and presumably “recapitalize a failing bank” is not one of them. Any VC who did this would probably have been sued by their investors.
birdyrooster 4y ago
So you are saying the bank ceo was in conspiracy with vc heavy weights to tank the bank at the expense of their startups who bank there? Made the CEO buy long term bonds right before a bank run?

peteradio 4y ago

Maybe we need to understand how management came to the investment decisions they did? Surely those kinds of decisions are well documented. I'm concerned the banks clientelle was too intertwined with the banks decision making.

ajross 4y ago

> The management of SVB messed up massively, and some VCs noticed. They would have been every bit as insolvent if the VCs in question had kept their mouths shut I keep saying this, but "The management of SVB" was a core part of the VC ecosystem. These weren't remotely separate entities. This bank was being run like a cartel, not a competetive service provider in an efficient market. And the VC's were, 100%, in on it. Exactly how, I suspect, is going to be revealed in the coming months.

amluto 4y ago
If I had to guess, this failure was neither complicated nor involved any sort of conspiracy on the part of the VS. Imagine you run a largish financial company. Over the course of a year or two, your customers like your service and ask you to hold on to a few tens of billions of dollars for them. And they only ask for 0.20% interest. Wow! You could invest this money in the usual money-market things (short term treasuries, etc), and earn very little money. Still plenty in the grand scheme of things (you're multiplying by tens of billions!), not you see dollar signs in your eyes and want more. And you look at the yield curve: https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2021 https://home.treasury.gov/resource-center/data-chart-center/... Wow, you can get 2% net if you buy long-dated treasuries, and 2% of tens of billions is hundreds of millions of dollars a year! And those dollar signs in your eyes get really big and you ignore the fact that this shiny yield curve is in part because no one sensible actually expects rates to stay low forever. And you also think "wow, this is such a good deal that I'm not going to think about the fact that a long-dated treasury is also a short bet on interest rates". So you decide to pull the trigger and buy these things with customer money. And then the plot actually gets a bit nefarious, because you discover that this will violate Basel III. So you lobby Congress to exempt you, and you succeed, and you go for it. And you make a killing, at least until it blows up completely. (The whole "liquidity" story is a red herring here. If SVB had been solvent, liquidity would likely have appeared. But SVB was actually insolvent, and no one really wants to lend money to an insolvent institution.) If the VCs had actually been paying attention, I bet some of them would have said to their portfolio companies "here are a few million dollars in capital -- kindly store it in a Basel III-compliant bank or maybe a money market operated by one of the big players" and not "SVB is down the road and they're great!". Because the VCs were not playing the "screw up the Fed's monetary policy next year" game -- they were playing the "throw lots of money at portfolio companies and hope some of them make it big" game.

mindslight 4y ago

No. Can we quit trying to shoehorn mutlifaceted situations into having one single cause to the exclusion of all others?