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What people arent saying: VCs received cheap loans and financial services from SVB if they got their portfolio companies to bank with SVB. There were in some s

What people arent saying: VCs received cheap loans and financial services from SVB if they got their portfolio companies to bank with SVB. There were in some sense backdoor deals, which resulted in these odd loans and bad portfolios. It was all built on an assumption of cheap capital. People are not discussing how incestuous SVB was with VCs, and many will get off the hook for unethical financial behavior. I dont think calling SVB poorly run is accurate, it was run for profits. The decision making is opaque at this point, and my guess is if the curtain is pulled back, it was run exactly as intended. If you watch the most recent episode of the AllIn podcast, they hint at this being the case. Clearly they know there was bad behavior, but dont discuss it at length. This is just another case of wealthy people gambling, with the common man absorbing the losses.

erredois 4y ago
It was badly run, the main job a bank have is to manage it's risk. They did a bad job at managing risk.
- Arnt 4y ago
  The bank died from a bank run. How much capital outflow per day, per week, per month should a bank's management plan to handle, do you think?
MrMan 4y ago
[dead]
frozenport 4y ago
Sounds like legitimate business model, and not surprising for a place called "Silicon Valley" Bank? If SVB can't offer better deals for VCs then nobody can?
- luckylion 4y ago
  But it came with strings attached: you put all your companies' money here, far beyond FDIC insurance levels, and don't go anywhere else, and for that we'll get you a nice rate on this unrelated private deal. Sounds pretty close to an investment where the investor shouldn't be made whole.
  - dragonwriter 4y ago
    Honestly, it sounds like an offer that banks should be prohibited from making by banking regulations, not something the counterparty should be punished for accepting.
    - luckylion 4y ago
      Maybe, but that's probably not happening, and we already have a mechanism that heavily disincentivizes it: make risky deals that go bad and you only get the money that was insured, but not the risky deal-part. It's just that we've decided that this time the risk mustn't be carried by those that profited from the deal.
  - enra 4y ago
    I never heard this to be the case. Yeah VC might recommend SVB but I’ve never seen or heard a term sheet that said you must put money in SVB. Once VC wires the money, it’s in the company’s control and they can put it or do whatever want with it (obviously within reasonable corporate governance). VCs don’t have much power, even if they do in some companies, you don’t want to spend it on something like where the company banks. Companies put money in SVB because it was often the default option that everyone used that understood how startups operate. Then in some cases, companies would raise additional venture debt from SVB and for that you had to park money there. I got invited to events too and rep pushed the debt as “dilution free money” (as opposed to normal money for equity vc deal). I never took it as didn’t need it.
    - luckylion 4y ago
      And apparently some (many?) got private back-room deals as well, a prominent example linked on a sibling tree: https://twitter.com/bradocapital/status/1635644287630159872 https://twitter.com/bradocapital/status/1635644287630159872 There was some discussion on HN about some VCs putting it in term sheets. I don't know if it's true, I guess we won't find out because law suits have been averted. When you're mixing private deals (for investores and founders) with company deals, you're usually on the hook for something. Letting them off the hook is nice, but it sends a terrible message and will only lead to greater implosions later.
ProAm 4y ago
This is why Im against the uninsured deposits being bailed out. There was a lot of under the table back office deals. Everyone with a million dollars knows what the word uninsured means.
hbarka 4y ago
Example: https://twitter.com/bradocapital/status/1635644287630159872 https://twitter.com/bradocapital/status/1635644287630159872
- fdgsdfogijq 4y ago
  This is a stunning clip, especially given how instrumental JCal and David Saks were on twitter calling for a bank run and subsequent bailout.
  - deleted 4y ago
    [deleted]
  - unit_circle 4y ago
    I agree this is a stunning clip and a disgusting display of nepotism. But I wouldn't say this clip is stunning (other than the temporal proximity). Sounds like this dude likes to run his mouth. He's bragging about his 3k sqft loft and these weird loan deals in front of strangers... I have no idea who he is, but if you showed me this clip and asked me to guess what he did when things went down, I'd tell you he said some (probably dumb) off-the-cuff stuff.
SilasX 4y ago
But the thing that did SVB in was, overwhelmingly, Treasury bonds, due to duration risk and interest rates going up, nothing to do with the bank's more exotic practices.
- fdgsdfogijq 4y ago
  This isnt the truth. 10% of their portfolio was worthless VC loans.
  - walrus01 4y ago
    They also hold (held?) $80bn in mortgage backed securities, which I'm consistently suspicious of how much is really grade A investment material.
    - cameldrv 4y ago
      MBS having too many defaults was the problem in 2008, which I think is making people turn their attention to this issue. However, we are in a different situation today. IMO the tradable securities that SVB held are probably the least of their problems. The MBS certainly has the problem of being worth less due to higher interest rates. The MBS at least though is tradable and has a market price. Their own book of loans though is much larger and is subject to the same interest rate problems as their MBS and treasuries, and in addition to having lost value due to interest rate issues, it may now have default issues as well. Not a good combination.
  - raws 4y ago
    Another 10% was low % 5yrs bonds which they had to sell early with penalties to cover the run on the bank which incurred considerable losses. I would think a VC bank knows that some of its VC investments would not outperform. My understanding is that if the run does not happen, it's business as usual, nothing like '08 when borrowers started failing to pay en mass on internationally overrated loans in AAApackages.
  - tomatocracy 4y ago
    Bank regulations are designed to ensure that this type of thing is a shareholder (and pref/AT1) risk - I haven't seen any claims that they were inappropriately or incorrectly rating those risks for capital purposes (but perhaps they were, who knows).
walrus01 4y ago
> People are not discussing how incestuous I think everyone would be served by a frank examination and critical review of buddy-buddy networks and "incestuous" relationships in the finance industry generally. Not just SVB and VCs.
- plussed_reader 4y ago
  And now you're identifying the problem of analyzing the incumbent money and power structures; witness the corrupted speed at which an entity like UBS is absorbing DebitSuisse and the like within the banking industry consolidating at breakneck speed ahead of regulatory framework processes. Smells of that too big to fail BS all over again.
  - kneebonian 4y ago
    The details may be different but the whole "bailing out people who had more than $250k in SVB", reeked to me of the big people with money and power getting bailed out, while the small people get screwed again.
carapace 4y ago
Here's a loony thought: what if the VCs just exited the whole Valley 'cause they saw the handwriting on the wall in re: ChatGPT et. al. dropping the floor out of the startup industry? It's not true, I think, but it makes for a neat movie plot idea?
permo-w 4y ago
if an organisation is giving out money that it doesn’t have, presumably from the deposits of other clients, is that not just a ponzi scheme?
- thedangler 4y ago
  You do realize the US Banks run on 0 fractional reserve lending... They could do what ever they wanted with 0 cash to support the lending.
  - permo-w 4y ago
    you say that as if it’s a contradiction
  - admax88qqq 4y ago
    There are other rules on what they can do.
- hbarka 4y ago
  It’s called Fractional Reserve Banking: https://www.investopedia.com/terms/f/fractionalreservebanking.asp https://www.investopedia.com/terms/f/fractionalreservebankin... However, I’m not sure what percent SVB kept. Some are saying zero, is this true? There is a requirement but not sure if easing of Dodd-Frank allowed SVB to bypass it. https://www.federalregister.gov/documents/2022/12/01/2022-26065/reserve-requirements-of-depository-institutions https://www.federalregister.gov/documents/2022/12/01/2022-26...
  - permo-w 4y ago
    calling it something different doesn’t change the fact that when people came for their money it wasn’t there additionally it seems the US made their fractional reserve requirement 0% in 2020
kqr 4y ago
> I dont think calling SVB poorly run is accurate, it was run for profits. Well, are they profitable? If they are currently failing to achieve what they supposedly aim for, surely the way they are run leaves something to be desired? It may be tempting to argue that "they were well run until the bad thing happened" but that is a fairly low bar for running things well.
chris_va 4y ago
> with the common man absorbing the losses. Most of your comment seemed reasonable, if a tad speculative given a lack of insider knowledge. But the last part feels like unnecessarily searching for a class warfare argument. To date, said execs have lost their equity, and liabilities have been transferred. It remains to be seen if any more losses will be absorbed, and by whom and how much. A counter argument is that a bunch of bank runs will destroy the "common man" and small businesses a lot more than folks parking money in hedge funds. The FDIC insurance pool works fine for a small number of regional banks, but it really is not that large.
- fdgsdfogijq 4y ago
  Gambles with customer funds -> looses -> passes losses to be bailed out through opaque means. This is really not that different than FTX, except it was legal. The current argument is they were incompetent and fell into some bad bets, this is the same argument Sam Bankman Fried tried to argue. Its all a facade
  - chris_va 4y ago
    "passes losses to be bailed out through opaque means" isn't at all correct. Comparing SBF to to buying treasury bonds is somewhat laughable... let's focus on what actually happened instead.
    - fdgsdfogijq 4y ago
      Thats another misconception, there were mortgage backed securities and VC loans in their portfolio. The idea that this was purely about treasuries is another attempt at passing off the buck.
jasmer 4y ago
In what way is VC's getting deals for referring customers even remotely nefarious? It's the way the entire world works and there's nothing wrong with it in general. SVB did not collapse because of this, the collapsed because of bad risk management, a lot of money that they could not lend out in low yield bonds they were locked into. It wasn't even that bad. The VCs decided to shoot themselves in the foot by creating a run on their own banks. Their hypocrisy is stunning. But Calacanis talking about getting sweetheart attention is a nothingburger.

erredois 4y ago

It was badly run, the main job a bank have is to manage it's risk. They did a bad job at managing risk.

Arnt 4y ago
The bank died from a bank run. How much capital outflow per day, per week, per month should a bank's management plan to handle, do you think?

MrMan 4y ago

[dead]

frozenport 4y ago

Sounds like legitimate business model, and not surprising for a place called "Silicon Valley" Bank? If SVB can't offer better deals for VCs then nobody can?

luckylion 4y ago
But it came with strings attached: you put all your companies' money here, far beyond FDIC insurance levels, and don't go anywhere else, and for that we'll get you a nice rate on this unrelated private deal. Sounds pretty close to an investment where the investor shouldn't be made whole.
- dragonwriter 4y ago
  Honestly, it sounds like an offer that banks should be prohibited from making by banking regulations, not something the counterparty should be punished for accepting.
  - luckylion 4y ago
    Maybe, but that's probably not happening, and we already have a mechanism that heavily disincentivizes it: make risky deals that go bad and you only get the money that was insured, but not the risky deal-part. It's just that we've decided that this time the risk mustn't be carried by those that profited from the deal.
- enra 4y ago
  I never heard this to be the case. Yeah VC might recommend SVB but I’ve never seen or heard a term sheet that said you must put money in SVB. Once VC wires the money, it’s in the company’s control and they can put it or do whatever want with it (obviously within reasonable corporate governance). VCs don’t have much power, even if they do in some companies, you don’t want to spend it on something like where the company banks. Companies put money in SVB because it was often the default option that everyone used that understood how startups operate. Then in some cases, companies would raise additional venture debt from SVB and for that you had to park money there. I got invited to events too and rep pushed the debt as “dilution free money” (as opposed to normal money for equity vc deal). I never took it as didn’t need it.
  - luckylion 4y ago
    And apparently some (many?) got private back-room deals as well, a prominent example linked on a sibling tree: https://twitter.com/bradocapital/status/1635644287630159872 https://twitter.com/bradocapital/status/1635644287630159872 There was some discussion on HN about some VCs putting it in term sheets. I don't know if it's true, I guess we won't find out because law suits have been averted. When you're mixing private deals (for investores and founders) with company deals, you're usually on the hook for something. Letting them off the hook is nice, but it sends a terrible message and will only lead to greater implosions later.

ProAm 4y ago

This is why Im against the uninsured deposits being bailed out. There was a lot of under the table back office deals. Everyone with a million dollars knows what the word uninsured means.

hbarka 4y ago

Example: https://twitter.com/bradocapital/status/1635644287630159872 https://twitter.com/bradocapital/status/1635644287630159872

fdgsdfogijq 4y ago
This is a stunning clip, especially given how instrumental JCal and David Saks were on twitter calling for a bank run and subsequent bailout.
- deleted 4y ago
  [deleted]
- unit_circle 4y ago
  I agree this is a stunning clip and a disgusting display of nepotism. But I wouldn't say this clip is stunning (other than the temporal proximity). Sounds like this dude likes to run his mouth. He's bragging about his 3k sqft loft and these weird loan deals in front of strangers... I have no idea who he is, but if you showed me this clip and asked me to guess what he did when things went down, I'd tell you he said some (probably dumb) off-the-cuff stuff.

SilasX 4y ago

But the thing that did SVB in was, overwhelmingly, Treasury bonds, due to duration risk and interest rates going up, nothing to do with the bank's more exotic practices.

fdgsdfogijq 4y ago
This isnt the truth. 10% of their portfolio was worthless VC loans.
- walrus01 4y ago
  They also hold (held?) $80bn in mortgage backed securities, which I'm consistently suspicious of how much is really grade A investment material.
  - cameldrv 4y ago
    MBS having too many defaults was the problem in 2008, which I think is making people turn their attention to this issue. However, we are in a different situation today. IMO the tradable securities that SVB held are probably the least of their problems. The MBS certainly has the problem of being worth less due to higher interest rates. The MBS at least though is tradable and has a market price. Their own book of loans though is much larger and is subject to the same interest rate problems as their MBS and treasuries, and in addition to having lost value due to interest rate issues, it may now have default issues as well. Not a good combination.
- raws 4y ago
  Another 10% was low % 5yrs bonds which they had to sell early with penalties to cover the run on the bank which incurred considerable losses. I would think a VC bank knows that some of its VC investments would not outperform. My understanding is that if the run does not happen, it's business as usual, nothing like '08 when borrowers started failing to pay en mass on internationally overrated loans in AAApackages.
- tomatocracy 4y ago
  Bank regulations are designed to ensure that this type of thing is a shareholder (and pref/AT1) risk - I haven't seen any claims that they were inappropriately or incorrectly rating those risks for capital purposes (but perhaps they were, who knows).

walrus01 4y ago

> People are not discussing how incestuous I think everyone would be served by a frank examination and critical review of buddy-buddy networks and "incestuous" relationships in the finance industry generally. Not just SVB and VCs.

plussed_reader 4y ago
And now you're identifying the problem of analyzing the incumbent money and power structures; witness the corrupted speed at which an entity like UBS is absorbing DebitSuisse and the like within the banking industry consolidating at breakneck speed ahead of regulatory framework processes. Smells of that too big to fail BS all over again.
- kneebonian 4y ago
  The details may be different but the whole "bailing out people who had more than $250k in SVB", reeked to me of the big people with money and power getting bailed out, while the small people get screwed again.

carapace 4y ago

Here's a loony thought: what if the VCs just exited the whole Valley 'cause they saw the handwriting on the wall in re: ChatGPT et. al. dropping the floor out of the startup industry? It's not true, I think, but it makes for a neat movie plot idea?

permo-w 4y ago

if an organisation is giving out money that it doesn’t have, presumably from the deposits of other clients, is that not just a ponzi scheme?

thedangler 4y ago
You do realize the US Banks run on 0 fractional reserve lending... They could do what ever they wanted with 0 cash to support the lending.
- permo-w 4y ago
  you say that as if it’s a contradiction
- admax88qqq 4y ago
  There are other rules on what they can do.
hbarka 4y ago
It’s called Fractional Reserve Banking: https://www.investopedia.com/terms/f/fractionalreservebanking.asp https://www.investopedia.com/terms/f/fractionalreservebankin... However, I’m not sure what percent SVB kept. Some are saying zero, is this true? There is a requirement but not sure if easing of Dodd-Frank allowed SVB to bypass it. https://www.federalregister.gov/documents/2022/12/01/2022-26065/reserve-requirements-of-depository-institutions https://www.federalregister.gov/documents/2022/12/01/2022-26...
- permo-w 4y ago
  calling it something different doesn’t change the fact that when people came for their money it wasn’t there additionally it seems the US made their fractional reserve requirement 0% in 2020

kqr 4y ago

> I dont think calling SVB poorly run is accurate, it was run for profits. Well, are they profitable? If they are currently failing to achieve what they supposedly aim for, surely the way they are run leaves something to be desired? It may be tempting to argue that "they were well run until the bad thing happened" but that is a fairly low bar for running things well.

chris_va 4y ago

> with the common man absorbing the losses. Most of your comment seemed reasonable, if a tad speculative given a lack of insider knowledge. But the last part feels like unnecessarily searching for a class warfare argument. To date, said execs have lost their equity, and liabilities have been transferred. It remains to be seen if any more losses will be absorbed, and by whom and how much. A counter argument is that a bunch of bank runs will destroy the "common man" and small businesses a lot more than folks parking money in hedge funds. The FDIC insurance pool works fine for a small number of regional banks, but it really is not that large.

fdgsdfogijq 4y ago
Gambles with customer funds -> looses -> passes losses to be bailed out through opaque means. This is really not that different than FTX, except it was legal. The current argument is they were incompetent and fell into some bad bets, this is the same argument Sam Bankman Fried tried to argue. Its all a facade
- chris_va 4y ago
  "passes losses to be bailed out through opaque means" isn't at all correct. Comparing SBF to to buying treasury bonds is somewhat laughable... let's focus on what actually happened instead.
  - fdgsdfogijq 4y ago
    Thats another misconception, there were mortgage backed securities and VC loans in their portfolio. The idea that this was purely about treasuries is another attempt at passing off the buck.

jasmer 4y ago

In what way is VC's getting deals for referring customers even remotely nefarious? It's the way the entire world works and there's nothing wrong with it in general. SVB did not collapse because of this, the collapsed because of bad risk management, a lot of money that they could not lend out in low yield bonds they were locked into. It wasn't even that bad. The VCs decided to shoot themselves in the foot by creating a run on their own banks. Their hypocrisy is stunning. But Calacanis talking about getting sweetheart attention is a nothingburger.