What happened to Silicon Valley Bank?
Silicon Valley Bank (SVB) collapsed last week at a very rapid pace. Customers withdrew a staggering $42 billion of deposits between 8th and 9th March 2023. In simpler words:
- SVB was looking to raise around $2.25 billion
- There was a hysteria-induced bank run caused by VCs
- California Department of Financial Protection and Innovation closed the bank and started proceedings to protect the interests of depositors.
Why care about Silicon Valley Bank?
Financial Institutions fail more frequently than we like. Silicon Valley Bank, as the name suggests, was geared more towards technology companies and related ecosystem. A few reasons will be:
- Many Indian startups (especially SaaS firms) have credit lines and/or deposits with SVB. Almost all SaaS companies with US presence will have an SVB account.
- Most YCombinator funded companies park their capital with SVB
- SVB has a office in Bangalore at Manayata Tech Park
- Banking is a lifeline of exchanging value. Your team members will not care about you if their payouts are delayed because of the banking partner.
Learnings
I have never banked with SVB, but as they say Learn from the mistakes of others. You can't live long enough to make them all yourself. The following are learning from SVB:
- Managing risk is a primary job of an Entrepreneur. Always be switched on.
- Things do break and will break at a greater frequency in the modern world. Be prepared with a plan when you are on the receiving end.
- If a bank collapses in India, there’s little to none immediate relief offered by the regulator vs USA. Always keep a rainy day fund.