Losing deposits means losing cash flow to fund runway. Many tech companies just spent the last year optimizing to get 18-24 months cash runway. If they just lost several months of that, they will need to recover it somehow. That will come either from layoffs or increasing prices.
Similarly, companies raise capital to achieve goals. If 10-20% of that capital vaporizes, the ability to achieve those goals will be harmed. Some companies will not achieve those goals, and may be unable to raise future financing.
We're talking about operating cash for these companies. The hit to equity holders is not the problem right now.
Of course my comments above refer mostly to venture backed tech companies, but that represents a significant share of SVB's clients.
> Many tech companies just spent the last year optimizing to get 18-24 months cash runway. If they just lost several months of that, they will need to recover it somehow. That will come either from layoffs or increasing prices.
Or by raising earlier than expected, as a down round? I don't understand why a solid company would be in trouble (though I'm not convinced that a high proportion of SV companies are actually solid).
> Or by raising earlier than expected, as a down round?
Raising down rounds will be lower on the priority list to layoffs. Most companies would vastly prefer to buy more time to grow into their next milestone than to admit they can't achieve it and raise at a lower valuation. We generally know this to be true, in part because we just watched it happen across the entire tech ecosystem over the last ~12 months or so.
Logically, it makes sense. VC backed startups operate on optics and momentum. Layoffs are recoverable, failing to hit goals is much less so (I'm speaking purely about optics here, not my personal preference).
> though I'm not convinced that a high proportion of SV companies are actually solid
This is likely accurate. But that's not necessarily criticism, most companies in their early days aren't "solid" (if by solid you mean default alive and/or having a path to profitability). SVB is overly exposed to these types of clients, which is why I think there stands to be a large impact here if depositors need to take a 10-20% haircut.
I hear you. Having run a venture backed startup myself, my opinion on how modern venture businesses work is...not at its highest point, to say the least.
At the same time, I really have a preference for people who didn't sign up for this kind of risk (I.e. most companies are Seed-Series B companies who understood the risk that the company might fail, but not the risk that their company had all their cash in one bank that failed), to not be laid off as a result of this.
Life is not fair! A lot of times bad things happen due to no fault of your own. That doesnt mean government should come bail you out. In fact I am bootstrapping a business and if you dont let this event kill all my competition I would call that really unfair.
Furthermore it is unlikely this will even affect anyone that is actually vulnerable like workers at Walmart for example.
There are plenty of workers at tech companies that are extremely vulnerable. It's an absolute myth that startups employ only 6-figure salary earning tech employees.
Regardless, you're not replying to a thread where anyone claimed that the government should bail anyone out. You're replying to a thread where I mentioned that taxpayers are going to foot this bill one way or another. Either because the government does bail out the bank, or because regular taxpayers lose their jobs in the fallout.
Similarly, companies raise capital to achieve goals. If 10-20% of that capital vaporizes, the ability to achieve those goals will be harmed. Some companies will not achieve those goals, and may be unable to raise future financing.
We're talking about operating cash for these companies. The hit to equity holders is not the problem right now.
Of course my comments above refer mostly to venture backed tech companies, but that represents a significant share of SVB's clients.