15 ms·

Classic scapegoating. The problem was the bank, not a fund that was acting responsibly. > On Thursday, as the bank was beginning to unravel, the firm started w

Classic scapegoating. The problem was the bank, not a fund that was acting responsibly. > On Thursday, as the bank was beginning to unravel, the firm started what’s known as a capital call. That’s a run-of-the-mill activity in the venture capital world, in which a VC firm asks its investors, or limited partners, to send it money in order to make investments in startups — the core function of most VC firms. It began by asking those backers to transfer the funds to accounts at SVB, as it has done for years, the person said. > But the firm learned that its limited partners were encountering issues using SVB services as they tried to transfer the funds — they weren’t immediately going through as expected, the person said. > Quickly, Founders Fund asked its investors to transfer the money to other banks instead. The fund acted to ensure that startup funding deals that were slated to close in the coming days were not delayed, the person said. https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-founders-fund-withdrew-millions-from-silicon-valley-bank https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-f...

pcarolan 4y ago
The problem was the community (or lack of). This was *their* bank. These are the titans of Silicon Valley and they couldn't get together in a room and work it out. Instead everyone took to Twitter. To call it a prisoner's dilemma is a straw man because it implies they couldn't have picked up the phone and called each other. It was a failure to have a group of professionals with mutual interests work it out together. It was a failure that an adult didn't step up. There was a moment in which this could have been staved off, but the integrative fabric of the community wasn't strong enough to hold it together. I don't blame anyone individually, but I am taking the note from the postmortem to make sure I'm building closer ties to the people around me I depend on.
- hypothesis 4y ago
  > It was a failure to have a group of professionals with mutual interests work it out together. I saw plenty comments to the effect that maybe getting out first and leaving competition in the dust is also ok. For all we know someone could also have picked up a distressed bank, save feds stepping in forcefully.
- voisin 4y ago
  > It was a failure to have a group of professionals with mutual interests work it out together. It was a failure that an adult didn't step up. What exactly do you think they should have done? The issue was that startups would need money in a less attractive environment (rising rates) and so it was just a matter of time before the mismatch between short term deposits and long term bond portfolio would clash.
  - pcarolan 4y ago
    The gap between assets and liabilities on thu/fri (as i understand it) was single digits. SVB tried to raise capital, but instead long-term customers pulled their deposits and told their portfolios to do the same. Some kind of restructuring and reassurances have prevented runs like this in the past and could have now. Maybe more will come out, but it felt like it was undone by lack of the kind of co-operation you often in local chambers of commerce and rotary clubs. These people were on first name basis with the board and president of the bank for a reason. Where were they?
- EGreg 4y ago
  “To call it a prisoner's dilemma is a straw man because it implies they couldn't have picked up the phone and called each other.” This is a different age. Even when far weightier things like world war are on the table, they don’t do that anymore. Khrustchev and Kennedy established a direct line, talked to each other and deescalated the Cuban Missile Crisis. Biden and Putin did the opposite, since 2020. Just a lot of misunderstanding and escalation, and they have not yet had a direct conversation. https://youtu.be/0fkKnfk4k40?t=19m25s https://youtu.be/0fkKnfk4k40?t=19m25s
  - korroziya 4y ago
    >and they have not yet had a direct conversation Thank god.
    - EGreg 4y ago
      I always find 15:00-15:30 in that Kennedy speech I linked above chilling, because exactly what he warned everyone "above all" is exactly our systematic policy now, and anyone with a different idea is systematically brushed aside. Be it progressives or republicans in congress, or even the Pope himself. https://www.theguardian.com/us-news/2022/oct/25/democrats-joe-biden-ukraine-war-russia-letter https://www.theguardian.com/us-news/2022/oct/25/democrats-jo...
  - michaelmrose 4y ago
    There is only one party at fault for Russia's unprovoked murderous attack on their neighbors and the slaughter and rape of its innocents. There is no communique that could have resolved this because Russia believed that it would quickly roll into Kiev and end it. They continue to believe that it will be in their interest to prevail as they believe they will long term. Negotiation is unlikely to change this analysis if the rotting corpses of its own dead isn't sufficiently persuasive.
    - EGreg 4y ago
      Sure this could have been prevented, and resolved, in many different ways. 1. The most straightforward way would be for Russia and Ukraine to have implemented the Minsk II Agreements at any time since 2015, when they were introduced. Minsk II says as soon as the Donbas region gets some autonomy and votes for their own representatives, Ukraine would get control over the entire borders of its country, everyone would get amnesty, lay down their arms, and unicorns would frolic around. But for some reason this was considered "bad" and the election kept being postponed: https://en.wikipedia.org/wiki/Minsk_agreements#Evaluation_and_abandonment https://en.wikipedia.org/wiki/Minsk_agreements#Evaluation_an... As a libertarian, I blame the politicians: https://www.youtube.com/watch?v=Mg4Jmnw3xQg https://www.youtube.com/watch?v=Mg4Jmnw3xQg 2. An easy way that the USA could unilaterally prevent this escalation is simply to say that Ukraine would not join NATO. Tulsi Gabbard for instance literally said this in the first days of the war: https://www.youtube.com/watch?v=OF5oPNjMZw4 https://www.youtube.com/watch?v=OF5oPNjMZw4 Until 2009, most of Ukraine was against joining NATO: https://www.kyivpost.com/post/10444 https://www.kyivpost.com/post/10444 But George W Bush, besides invading Iraq, also for some reason insisted, demanded that Ukraine and Georgia join NATO anyway: https://www.reuters.com/article/us-nato-ukraine-bush/bush-vows-to-press-for-ukraine-georgia-in-nato-idUSL0141706220080401 https://www.reuters.com/article/us-nato-ukraine-bush/bush-vo... The following presidents could have simply rolled this back. Not even other NATO countries really wanted what George W Bush was pushing, but it turned into an escalation. And literally every responsible person was warning about this for decades: https://theconversation.com/ukraine-war-follows-decades-of-warnings-that-nato-expansion-into-eastern-europe-could-provoke-russia-177999 https://theconversation.com/ukraine-war-follows-decades-of-w... https://www.armscontrol.org/act/1997-06/arms-control-today/opposition-nato-expansion https://www.armscontrol.org/act/1997-06/arms-control-today/o... The problem is these people were just ignored by the decision makers in power: https://www.youtube.com/watch?app=desktop&v=KqE7UTptgGg https://www.youtube.com/watch?app=desktop&v=KqE7UTptgGg I wouldn't say it's "unprovoked". It was not provoked by Ukraine, but certainly by NATO's expansion. A lot of people around the world feel this way, including leaders of billions of people (China, India, the catholic Pope, etc.) https://www.youtube.com/watch?v=oEbVBi1f0e8 https://www.youtube.com/watch?v=oEbVBi1f0e8 and the people themselves India: https://thewire.in/world/more-indians-hold-us-nato-responsible-for-ukraine-war-than-russia-survey https://thewire.in/world/more-indians-hold-us-nato-responsib... China: https://uscnpm.org/2022/04/19/chinese-public-opinion-war-in-ukraine/ https://uscnpm.org/2022/04/19/chinese-public-opinion-war-in-... 3. To be 100% clear, the CIVILIANS of any country are not to blame for any of this. The people of Ukraine are victims in this, just like Iraqis were victims of US invasion and occupation. But I can still blame Saddam Hussein for ousting inspectors and giving the US an excuse to invade. If you think the Russian invasion was "unprovoked", then the invasion on Iraq was even more unprovoked. But both are far more provoked than, say, the US bombing of Laos to the stone age, more than any country has ever been bombed in history. Totally unprovoked "special military operation", completely. There have to be ways to stop this. And it's called respect for human life and having public discussions with leaders instead of bombing their population. Just my 2 cents.
- wstuartcl 4y ago
  yeah I think there are two things that will be interesting here. The real detailed timeline. How much Thiel's cohorts jumped into offer bridge loans or stopgaps to impacted companies for insane rates/equity. IMHO this feels like a small problem that was turned into a crashed bank by targeted withdraws -- with the goal being blood in the water for the industry so the companies and investors that yanked out could clean up.
- pg_bot 4y ago
  It's not a straw man to call this a prisoner's dilemma. The bank went from well respected institution to receivership in approximately 24 hours. 42 billion dollars worth of deposits was taken out of the bank. In the amount of time it would take to coordinate everyone (assuming they would even cooperate), someone else would've beaten you to the punch and removed their money. Every additional person that has made that decision puts you at risk of holding the bag. I do not fault any of the VCs who requested that their portfolio companies pull their money out. They saw the writing on the wall and were trying to protect themselves, the companies they invested in, and their LPs.
  - pcarolan 4y ago
    It was a mismanaged crisis, I think on that point we agree.
    - pg_bot 4y ago
      In theory a restaurant that is over capacity and catches on fire should be able to have everyone exit without death or injury. In practice, people panic and act in their own self interest leading to disaster.
      - wahern 4y ago
        Except often enough in such a situation everyone does exit orderly. People are generally predisposed to cooperate; it's what makes us human. The situations where panic prevails are the exception. What's the saying... success has many fathers, but failure is an orphan?
        chii 4y ago
        > everyone does exit orderly. this only happens when there's leadership present to which the rest get directed, and the crowd trusts the leadership to act with their interest in mind. E.g., a uniform wearing fire-warden, is often enough. If there's no such leadership, or they are acting (clearly) not in the interest of the "crowd", you will see panic and a failure to cooperate. This, not cooperation, is what makes humans truly humans.
expazl 4y ago
> a fund that was acting responsibly You have to consider how these actions will affect the future relationships between banks and both the specific actors but also the startup scene in general. Startups already had a difficult time with traditional banking which is a large factor in why SVB was so successful, because it catered to the market specifically. What bank is now going to look at a startup not be thinking "Do we really want to take on a group of people who will collectively launch a bankrun at the slightest sign of trouble, even if we are geared to handle a bank run?", A run on the bank is never good news, even if the bank stays liquid, and it has a ton of knock-on effects and causes a huge number of headaches for the bank. In this situation, where you think there might be a bank run and you have a coordinating role with a large number of customers. I think the responsible thing to do would have been to reach out to the bank and talk through all the options that will let everyone stay whole without a bankrun, not to fire up a group chat and scream "The bank is burning to the ground!". It seemed very likely that without the panic SVB could have secured liquidity and then the long term investments would not have posed a risk. I'm not saying their position was optimal or even good, but the panic just does not look to be the best option for the customers nor the most responsible action for those who had major pull in the market.
- JumpinJack_Cash 4y ago
  > > Startups already had a difficult time with traditional banking I have seen this statement a half-dozen times in the last 3 days. Can somebody explain in detail what are these hard times that a startup faces at Wells Fargo, BoA, JPMChase etc? KYC? If Silicon Valley Bank was skipping that then they were against the law Wires being signaled as suspicious? I doubt it, maybe the startup is new but everybody knows who the Founder's Fund is... or Blackstone or CVC. When they send the big equity raise checks banks look at the recipient but also at the sender.
  - kelnos 4y ago
    KYC is a big part of it, yes. SVB wasn't skipping it; the Wells/BoA/Chase-type banks just do not want to do the additional KYC work for completely unknown players, which many startup founders are. It's not just that; certainly if you're going to open a corner convenience store, you probably won't have a lot of trouble getting a business bank account with BoA. But unlike a more traditional small business, tech startups often come with a massive amount of money that they immediately want to put in the bank, which raises flags... which brings me to: When a bank offers an account to a business, they take on anti-money-laundering and terrorist-funding risk. (That is, if one of their accounts is used for money laundering or funding terrorist activities, the bank is exposed legally to that.) That risk is higher for an unknown small company than a more known quantity. SVB specifically said "we're prepared to take on that risk"; the big banks... not so much. SVB also has built extensive relationships with a bunch of VCs, and will generally accept one of those VC's vouching for a new small company as a signal in favor of it being legitimate. The BoA's of the world don't do that sort of thing. (Source: a former colleague in the fintech space explained this to me.)
davidw 4y ago
Obviously none of this would have happened had the bank been in a stronger position. But a better outcome was perhaps possible if someone or a group had stepped up, rather than running for the exit as fast as possible.

pcarolan 4y ago

The problem was the community (or lack of). This was *their* bank. These are the titans of Silicon Valley and they couldn't get together in a room and work it out. Instead everyone took to Twitter. To call it a prisoner's dilemma is a straw man because it implies they couldn't have picked up the phone and called each other. It was a failure to have a group of professionals with mutual interests work it out together. It was a failure that an adult didn't step up. There was a moment in which this could have been staved off, but the integrative fabric of the community wasn't strong enough to hold it together. I don't blame anyone individually, but I am taking the note from the postmortem to make sure I'm building closer ties to the people around me I depend on.

hypothesis 4y ago
> It was a failure to have a group of professionals with mutual interests work it out together. I saw plenty comments to the effect that maybe getting out first and leaving competition in the dust is also ok. For all we know someone could also have picked up a distressed bank, save feds stepping in forcefully.
voisin 4y ago
> It was a failure to have a group of professionals with mutual interests work it out together. It was a failure that an adult didn't step up. What exactly do you think they should have done? The issue was that startups would need money in a less attractive environment (rising rates) and so it was just a matter of time before the mismatch between short term deposits and long term bond portfolio would clash.
- pcarolan 4y ago
  The gap between assets and liabilities on thu/fri (as i understand it) was single digits. SVB tried to raise capital, but instead long-term customers pulled their deposits and told their portfolios to do the same. Some kind of restructuring and reassurances have prevented runs like this in the past and could have now. Maybe more will come out, but it felt like it was undone by lack of the kind of co-operation you often in local chambers of commerce and rotary clubs. These people were on first name basis with the board and president of the bank for a reason. Where were they?
EGreg 4y ago
“To call it a prisoner's dilemma is a straw man because it implies they couldn't have picked up the phone and called each other.” This is a different age. Even when far weightier things like world war are on the table, they don’t do that anymore. Khrustchev and Kennedy established a direct line, talked to each other and deescalated the Cuban Missile Crisis. Biden and Putin did the opposite, since 2020. Just a lot of misunderstanding and escalation, and they have not yet had a direct conversation. https://youtu.be/0fkKnfk4k40?t=19m25s https://youtu.be/0fkKnfk4k40?t=19m25s
- korroziya 4y ago
  >and they have not yet had a direct conversation Thank god.
  - EGreg 4y ago
    I always find 15:00-15:30 in that Kennedy speech I linked above chilling, because exactly what he warned everyone "above all" is exactly our systematic policy now, and anyone with a different idea is systematically brushed aside. Be it progressives or republicans in congress, or even the Pope himself. https://www.theguardian.com/us-news/2022/oct/25/democrats-joe-biden-ukraine-war-russia-letter https://www.theguardian.com/us-news/2022/oct/25/democrats-jo...
- michaelmrose 4y ago
  There is only one party at fault for Russia's unprovoked murderous attack on their neighbors and the slaughter and rape of its innocents. There is no communique that could have resolved this because Russia believed that it would quickly roll into Kiev and end it. They continue to believe that it will be in their interest to prevail as they believe they will long term. Negotiation is unlikely to change this analysis if the rotting corpses of its own dead isn't sufficiently persuasive.
  - EGreg 4y ago
    Sure this could have been prevented, and resolved, in many different ways. 1. The most straightforward way would be for Russia and Ukraine to have implemented the Minsk II Agreements at any time since 2015, when they were introduced. Minsk II says as soon as the Donbas region gets some autonomy and votes for their own representatives, Ukraine would get control over the entire borders of its country, everyone would get amnesty, lay down their arms, and unicorns would frolic around. But for some reason this was considered "bad" and the election kept being postponed: https://en.wikipedia.org/wiki/Minsk_agreements#Evaluation_and_abandonment https://en.wikipedia.org/wiki/Minsk_agreements#Evaluation_an... As a libertarian, I blame the politicians: https://www.youtube.com/watch?v=Mg4Jmnw3xQg https://www.youtube.com/watch?v=Mg4Jmnw3xQg 2. An easy way that the USA could unilaterally prevent this escalation is simply to say that Ukraine would not join NATO. Tulsi Gabbard for instance literally said this in the first days of the war: https://www.youtube.com/watch?v=OF5oPNjMZw4 https://www.youtube.com/watch?v=OF5oPNjMZw4 Until 2009, most of Ukraine was against joining NATO: https://www.kyivpost.com/post/10444 https://www.kyivpost.com/post/10444 But George W Bush, besides invading Iraq, also for some reason insisted, demanded that Ukraine and Georgia join NATO anyway: https://www.reuters.com/article/us-nato-ukraine-bush/bush-vows-to-press-for-ukraine-georgia-in-nato-idUSL0141706220080401 https://www.reuters.com/article/us-nato-ukraine-bush/bush-vo... The following presidents could have simply rolled this back. Not even other NATO countries really wanted what George W Bush was pushing, but it turned into an escalation. And literally every responsible person was warning about this for decades: https://theconversation.com/ukraine-war-follows-decades-of-warnings-that-nato-expansion-into-eastern-europe-could-provoke-russia-177999 https://theconversation.com/ukraine-war-follows-decades-of-w... https://www.armscontrol.org/act/1997-06/arms-control-today/opposition-nato-expansion https://www.armscontrol.org/act/1997-06/arms-control-today/o... The problem is these people were just ignored by the decision makers in power: https://www.youtube.com/watch?app=desktop&v=KqE7UTptgGg https://www.youtube.com/watch?app=desktop&v=KqE7UTptgGg I wouldn't say it's "unprovoked". It was not provoked by Ukraine, but certainly by NATO's expansion. A lot of people around the world feel this way, including leaders of billions of people (China, India, the catholic Pope, etc.) https://www.youtube.com/watch?v=oEbVBi1f0e8 https://www.youtube.com/watch?v=oEbVBi1f0e8 and the people themselves India: https://thewire.in/world/more-indians-hold-us-nato-responsible-for-ukraine-war-than-russia-survey https://thewire.in/world/more-indians-hold-us-nato-responsib... China: https://uscnpm.org/2022/04/19/chinese-public-opinion-war-in-ukraine/ https://uscnpm.org/2022/04/19/chinese-public-opinion-war-in-... 3. To be 100% clear, the CIVILIANS of any country are not to blame for any of this. The people of Ukraine are victims in this, just like Iraqis were victims of US invasion and occupation. But I can still blame Saddam Hussein for ousting inspectors and giving the US an excuse to invade. If you think the Russian invasion was "unprovoked", then the invasion on Iraq was even more unprovoked. But both are far more provoked than, say, the US bombing of Laos to the stone age, more than any country has ever been bombed in history. Totally unprovoked "special military operation", completely. There have to be ways to stop this. And it's called respect for human life and having public discussions with leaders instead of bombing their population. Just my 2 cents.
wstuartcl 4y ago
yeah I think there are two things that will be interesting here. The real detailed timeline. How much Thiel's cohorts jumped into offer bridge loans or stopgaps to impacted companies for insane rates/equity. IMHO this feels like a small problem that was turned into a crashed bank by targeted withdraws -- with the goal being blood in the water for the industry so the companies and investors that yanked out could clean up.
pg_bot 4y ago
It's not a straw man to call this a prisoner's dilemma. The bank went from well respected institution to receivership in approximately 24 hours. 42 billion dollars worth of deposits was taken out of the bank. In the amount of time it would take to coordinate everyone (assuming they would even cooperate), someone else would've beaten you to the punch and removed their money. Every additional person that has made that decision puts you at risk of holding the bag. I do not fault any of the VCs who requested that their portfolio companies pull their money out. They saw the writing on the wall and were trying to protect themselves, the companies they invested in, and their LPs.
- pcarolan 4y ago
  It was a mismanaged crisis, I think on that point we agree.
  - pg_bot 4y ago
    In theory a restaurant that is over capacity and catches on fire should be able to have everyone exit without death or injury. In practice, people panic and act in their own self interest leading to disaster.
    - wahern 4y ago
      Except often enough in such a situation everyone does exit orderly. People are generally predisposed to cooperate; it's what makes us human. The situations where panic prevails are the exception. What's the saying... success has many fathers, but failure is an orphan?
      - chii 4y ago
        > everyone does exit orderly. this only happens when there's leadership present to which the rest get directed, and the crowd trusts the leadership to act with their interest in mind. E.g., a uniform wearing fire-warden, is often enough. If there's no such leadership, or they are acting (clearly) not in the interest of the "crowd", you will see panic and a failure to cooperate. This, not cooperation, is what makes humans truly humans.

expazl 4y ago

> a fund that was acting responsibly You have to consider how these actions will affect the future relationships between banks and both the specific actors but also the startup scene in general. Startups already had a difficult time with traditional banking which is a large factor in why SVB was so successful, because it catered to the market specifically. What bank is now going to look at a startup not be thinking "Do we really want to take on a group of people who will collectively launch a bankrun at the slightest sign of trouble, even if we are geared to handle a bank run?", A run on the bank is never good news, even if the bank stays liquid, and it has a ton of knock-on effects and causes a huge number of headaches for the bank. In this situation, where you think there might be a bank run and you have a coordinating role with a large number of customers. I think the responsible thing to do would have been to reach out to the bank and talk through all the options that will let everyone stay whole without a bankrun, not to fire up a group chat and scream "The bank is burning to the ground!". It seemed very likely that without the panic SVB could have secured liquidity and then the long term investments would not have posed a risk. I'm not saying their position was optimal or even good, but the panic just does not look to be the best option for the customers nor the most responsible action for those who had major pull in the market.

JumpinJack_Cash 4y ago
> > Startups already had a difficult time with traditional banking I have seen this statement a half-dozen times in the last 3 days. Can somebody explain in detail what are these hard times that a startup faces at Wells Fargo, BoA, JPMChase etc? KYC? If Silicon Valley Bank was skipping that then they were against the law Wires being signaled as suspicious? I doubt it, maybe the startup is new but everybody knows who the Founder's Fund is... or Blackstone or CVC. When they send the big equity raise checks banks look at the recipient but also at the sender.
- kelnos 4y ago
  KYC is a big part of it, yes. SVB wasn't skipping it; the Wells/BoA/Chase-type banks just do not want to do the additional KYC work for completely unknown players, which many startup founders are. It's not just that; certainly if you're going to open a corner convenience store, you probably won't have a lot of trouble getting a business bank account with BoA. But unlike a more traditional small business, tech startups often come with a massive amount of money that they immediately want to put in the bank, which raises flags... which brings me to: When a bank offers an account to a business, they take on anti-money-laundering and terrorist-funding risk. (That is, if one of their accounts is used for money laundering or funding terrorist activities, the bank is exposed legally to that.) That risk is higher for an unknown small company than a more known quantity. SVB specifically said "we're prepared to take on that risk"; the big banks... not so much. SVB also has built extensive relationships with a bunch of VCs, and will generally accept one of those VC's vouching for a new small company as a signal in favor of it being legitimate. The BoA's of the world don't do that sort of thing. (Source: a former colleague in the fintech space explained this to me.)

davidw 4y ago

Obviously none of this would have happened had the bank been in a stronger position. But a better outcome was perhaps possible if someone or a group had stepped up, rather than running for the exit as fast as possible.