If the technological innovation coming out of Silicon Valley is as important as venture capitalists insist, the past few days suggest they haven’t been very responsible stewards of it. The collapse of Silicon Valley Bank late last week may have resulted from a perfect storm of ugly events. But it was also emblematic of a startup ecosystem and venture-capital apparatus that are too unstable, too risky, and too unmoored from reality to be left in charge of something as important as the direction of our technological development.
As the startups that make up Silicon Valley Bank’s customer base scrambled to figure out whether they would be able to make payroll, a group of extremely online venture capitalists spent four days emoting on Twitter, ginning up confusion and hysteria about the threat of a systemic risk if depositors didn’t get all their money back, pronto. All weekend, they screamed that there would be an economic collapse, that they were concerned about the workers, that the Federal Reserve was responsible, that-that-that … until finally, on Sunday evening, they got what they wanted: the government promising full account access to all Silicon Valley Bank depositors.
By now, it is relatively clear what happened at Silicon Valley Bank. A pandemic bull run inflated the value of tech startups and the funds of investors, resulting in a tripling of deposits at the regional bank that specializes in the industry’s fledgling companies, from $62 billion at the end of 2019 to $189 billion at the end of 2021. SVB wanted to put that money to work, so it bought up U.S. Treasury and mortgage bonds that would take years to mature but serve as a relatively safe place to park its cash—as long as interest rates didn’t rise. They did rise, however, multiple times. [Continue reading…]