Politicians called the dramatic collapse of Silicon Valley Bank “the first Twitter-fueled bank run.” But in a highly networked tech industry, public social media feeds didn’t really drive burgeoning fears about SVB’s financial health.
Channels such as the messaging platform WhatsApp, email chains, text messages and other closed forums were filled with chatter about the bank’s financial instability. In the tech industry, where a network of executives determines whether a company has access to the best information, warnings about SVB have boiled over for a while, but have spread to a wider perspective online.
It wasn’t a phone. It wasn’t social media,” said the Silicon Valley startup founder who saw fears escalate that week in March. “It was a private chat room and a message he was in a group.” The person, who asked to remain anonymous about his private message conversations, was particularly concerned to hear from other founders that they would move funds. said it should.
By the time most people realize that a bank run is possible, On Thursday, March 9th, things were already going well.
early adopter
Gunjit Singh, co-founder of San Francisco-based Electric Sheep Robotics, first heard chatter about the financial troubles of Silicon Valley banks via a WhatsApp message in January. Initially he dismissed it. His company, which makes robotic lawn mowers, had most of its credit lines and cash in the bank, but at the time his concerns were mostly theoretical. “There are rumors about everything,” he said.
Of course, the rumors turned out to be true. Silicon Valley Bank has had liquidity problems due to a combination of rising interest rates and a large portfolio of long-term, low-yield assets. When we moved to strengthen our financial position in early March, many people began to take risks more seriously.
Alfred Chuang first became aware of Silicon Valley Bank’s health concerns on Wednesday, March 8, a day before the company’s stock dropped 60%, mostly via email and phone calls. Chuang, an investor at venture capital firm Race Capital, said the public company’s CEO started warning him about the bank that night. They were withdrawing money,” Chuan said. Race Capital “finished SVB in record time.”
Entrepreneur Vijay Rayapati also started receiving calls on Wednesday. Rayapati, co-founder and CEO of software company Atomicwork, was having lunch at a conference in Santa Monica, California. Caught in the hustle and bustle of the meeting, he didn’t think about calling back right away. However, the same friend woke up Rayapati in her hotel room that night and called her twice. What was Rayapati doing with his money at Silicon Valley Bank, his friend had already moved the funds.
Understanding the risks, Rayapati acted quickly. He tried to cash out his Atomicwork and asked his team to transfer his year’s worth of operating expenses to the startup subsidiary. At 2 a.m. Thursday, Rayapati, the founder of an India-Silicon Valley-based software company called DPC (short for Daru Pe Charcha), wrote a message to a close-knit group on WhatsApp. Daru is Hindi slang for alcohol, and daru pe charcha means “chat while drinking”.
“Ladies and gentlemen, we have been warned by multiple people to secure funds outside of SVB due to liquidity issues and downgraded ratings,” he wrote to the group. “This could cascade.” Yes, it’s just a friendly warning.”
One person who saw the message was Avinash Raghava, CEO of SaasBoomi. SaasBoomi is a group of hundreds of software company founders in India and USA. Raghava concluded that the danger was real, and about 400 of him shared the warning in a WhatsApp group. When he woke up the next morning, 265 messages were waiting for him in the group.
The founders were sharing everything: Sam Altman tweets, news clips from the web, their own challenges. “We all seemed to be trapped inside when the fire alarm went off,” he said. “And no one knew where the exit was.” The “Is Typing” blurb didn’t stop in WhatsApp groups for hours. According to Raghava, the initial warnings quickly reached his large group of 1,500 founders of his Slack-like channel called Circle.
Around the world, similar groups were spreading their own warning messages. Two people familiar with the matter said long-form threads flew around the country, including among the chief financial officers of large startups. In Thread, many startup founders and executives worried that the Silicon Valley Bank collapse would affect the industry’s infrastructure. By noon Thursday, many of the concerns in such groups had turned to panic, according to a person familiar with the matter.
“I was completely in pain”
Concerns about SVB began long before the chaotic week of March. Some of the first signs of trouble in banks began in November. At that time, Greenoaks Capital Partners warned portfolio companies to be careful with his SVB deposits. Another investment firm, Jericho Capital Asset Management, also began sounding the alarm bells quietly earlier this month, according to people familiar with the matter. Jericho declined to comment on the previously unreported early warning.
Even in the normally friendly venture capital world, there has been much debate about the morality of investors advising companies to bail out with SVB. Investors have come to warn companies, often privately. Perhaps they are trying to protect their investments and avoid bank runs.
But for the founder, whose company’s survival was in jeopardy, there was less anxiety. By Thursday morning, Rayapati was racing to secure cash for his company. “I was in total pain,” he said. His credit and debit cards were issued by his SVB. On Thursday, he showed up early at JPMorgan Chase and Bank of America.
Meanwhile, Rayapati’s WhatsApp message went viral among more founder groups than ever before. One person reposted the message adding contact details. Entrepreneurs were inundated with calls and messages. “Many of my fellow founders were in complete shock, suddenly being thrust into the role of subject matter expert when they clearly weren’t,” he said. “People ask me what to tell the board, how to pay my employees, my credit card doesn’t work, I don’t have any other bank relationships, how do I go to the US?” He asked me if I needed it. Today?”
By Thursday, concerns had spread. On the Y Combinator startup forums, Accelerator President Garry Tan wrote: In his thread of over 1,000 founder emails backed by Andreessen Horowitz, many entrepreneurs encouraged each other to withdraw cash from the bank. The company’s general partner, David George, made a somewhat cryptic remark. “I suggest you pick up the phone and call your GP.”
Investors often stayed away from social media during this critical time. One venture investor, who has dozens of investments in common with both Sequoia Capital and Andreessen Horowitz, said some of the founders said early Thursday morning that he received a personal phone call from the two venture giants. Told.
“I haven’t seen a phone more popular in the last 48 hours,” says Chuang.
Menlo Ventures partner Matt Murphy said his company warned startups late Thursday that a bank run was underway. By then it had become clear to observers. The company has instructed every founder to move his 30% of capital to another bank “as soon as possible,” Murphy said. “We told every partner to call every CEO. Some partners had five calls, some had 14,” Murphy said. He said he opted for phone calls instead of text messages and emails in an attempt to have “more calm conversations.”
Singh, founder of Electric Sheep Robotics, decided to withdraw his money in San Francisco just after noon on Thursday. That meant violating his loan agreement with SVB, requiring most of his funds to be kept in his SVB. However, he said, “I figured if there was any value in the relationship with SVB, it would be smooth sailing the next day when the bank recovered.” Around 2:30 Pacific, he received a call from an investor praising his prudent risk management after the transfer order was issued. By 3:00 p.m., he sent a draft email to the board of directors informing them of his decision.
But it was too late. The wire transfer did not go through.
aftermath
Rayapati, another founder who theoretically got off to an early start, spent Thursday in vain trying to move money out of SVB. On Friday morning, Rayapati arrived in San Francisco, where his SVB is headquartered, hoping to be able to move cash in person. When he got off the plane, his WhatsApp was flooded with messages, but he didn’t have time to open them.
Rayapati jumped in the car and took her to the hotel. When he arrived, Uber declined his SVB-issued credit card. When he arrived at the Marriott Hotel, he was told in the lobby that his card on file was invalid.About an hour ago, the SVB was taken over by the Federal Deposit Insurance Corporation. The entrepreneur swiped his personal card on both transactions.
Genuine panic spread on Twitter that day when SVB officially collapsed. Venture capitalists wondered if startups could see their money again and worked diligently with lawmakers to bail out depositors. And after a rough weekend, the government stepped in and announced it would guarantee deposits. On Twitter, the crisis subsided almost as quickly as it began.
Menlo Ventures investor Murphy is still a little shocked by the SVB demise. He said the transfer of funds was relatively slow. For it was not clear until the last moment that a decades-old institution would fail so quickly. He has been a member of SVB’s Ventures Capital Advisory Board for 20 years, and has also served on his 12 other representatives in elite venture firms. Quarterly meetings typically focused on one topic, from his VC fundraising strategy in China to up-and-coming sectors.
Murphy said of the friendly roundtables attended by most of the top companies, “There was always great wine and great discussions. Prior to the event, the bank, which had extensive deals with California vintners, sent investors bottles of wine to sample during Zoom meetings. Did.
But for banks, even the best networks have only gotten so far.A genuine love for SVB, as Sequoia Capital investors expressed their heartfelt condolences to the financial institution just after bankruptcy. Many of the investors who shared were the same people who quietly advised the startup to head for the exit.
–With help from Hannah Miller and Tracy Alloway.
