was
1yr ago
If the FDIC or other banking entity does not cover deposits, any business that depends on SVB and has a > $125K bimonthly payroll will have to do furloughs or layoffs. That's basically any business above ~15-20 people.
Directors of a company are criminally liable if they ask people to work knowing they have no means to pay them. Wednesday is March 15 (payday, for work done March 1 - 15). That means companies unable to make payroll #2 in March need to furlough or have layoffs before start of work Thursday.
There's something on the order of 1,000 series A or higher deals per year (even in 2022, decreased from 2021). The average time between raises is about 2 years. Thus, conservatively there's something like 2,000 venture-companies that have > $125K bimonthly payroll, and many small businesses that use SVB but are not venture-backed are not counted in this.
SVB purportedly services 50% of all startups per their advertising. From a survey of my VC and startup friends, it seems reasonable to assume that 25% of that are extremely dependent on SVB (e.g. payroll, no cash sitting elsewhere, and incoming customer payments aren't going to cover anything).
If these assumptions hold, we're looking at around 10% of the entire startup ecosystem laying off effectively everyone in March (e.g. either by going under, or reducing headcount so drastically that they're cashflow positive... which for most startups would be extremely painful). Another large batch will effectively go under in April (e.g. they have one months' payroll at another bank but that's it).
So in the short term we're talking about somewhere on the order of tens of thousands of jobs. A lot of future value creation is lost. Sure, some of these startups are the Juiceros or latest crypto scam, but others are meaningful companies that provide meaningful services. The latter group typically doesn't get as much press because they're optimizing for value rather than hype.
In the medium term, if you're a business that requires having an account with a >$250K balance, why would you now use any bank other than JPM? Sure you can do "diligence" on your bank, but SVB had an A rating from Moody's and a "buy" rating from JPM. Now obviously those are bullshit but for anyone claiming that this collapse was obvious -- please share a screenshot of your brokerage account where you made tons of $ shorting SVB.
So the default will be to go with JPM, rendering most small and medium-sized banks uncompetitive.
At the end of the day, SVB's shareholders will (and deserve to) get wiped out. Their bond creditors and such will mostly (and deserve to) get wiped out. I am not for bailouts of either of those parties. And maybe how we think about the banking system where depositors are creditors should be re-interrogated, because who the fuck is wanting to risk all their money for like a 0.5% interest rate? But I do NOT think startups and small businesses deserve to be randomly decimated.
was
1yr ago
It's not the lack of cash, it's the timing of it.
Directors of a company are criminally liable if they ask people to work knowing they have no means to pay them. Wednesday is March 15 (payday, for work done March 1 - 15). That means companies unable to make payroll #2 in March need to furlough or have layoffs before start of work Thursday.
How many will be able to secure funding from VCs (who may themselves have funds tied up in SVB) before Thursday?
was
1yr ago
It's more a historical thing. 25 years ago, when startups were less of "a thing", a lot of traditional banks didn't approve a startup account because the below looks really weird if you're used to servicing traditional businesses.
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Someone with no commercial history or credit
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Who wants a credit card
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Then who one day deposits millions of dollars
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And the next months dollars get sent out and the bank balance goes down
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With minimal consistent income
These days it's more that you ask some random person in the startup world, VC, or lawyer, and they go "yeah, a plurality of the people I know use SVB" and that's not where you spend your precious hours as a founder trying to differentiate your company so you just go with the flow.
Though, next week every single founder is going to be taking money out of First Republic, Citizens, Fifth Third, Capital One, BNY Mellon, etc. and wiring it straight to JPM. I suspect there will be a broader bank run.
was
1yr ago
To explain this relationship further to the layman audience, let's say the interest rate (which is directly related to yield) on Treasuries is 0% (and for simplification, that's the only other investment option, and the market doesn't price in any potential for that interest rate to change), and you buy a $100 bond that promises to pay 2% interest over the next 30 years. You're buying the bond and anticipating getting $182 at the end of 30 years!
The day after you buy the bond, the interest rate on Treasures gets raised to 5%. Now, in order to get $182 in 30 years, someone can just buy $42 worth of Treasuries today. So your "bond" is now worth less than $42 -- because why would they buy your bond when they could buy the Treasuries instead?
The difference is that saving the environment requires a coordinated action, but saving a kid in India does not. Any modestly well-off person from the U.S. can do it. So the fact that they don't is a revealed preference (vs. just a consequence of tragedy of the commons).
EAs use this contradiction to convince people to do more (by pointing out what you would do for someone in front of you). I don't have this contradiction -- I wouldn't do shit for many people in front of me either.
And yes, I stand by my assessment of Barbara Fried. Instead of passing a drug test to demonstrate purity of body, upper-class welfare leeches must pass a similar test put together by a granting agency to demonstrate purity of mind.
Here's her bibliography: https://law.stanford.edu/publications/?primary_author=Barbara%20Fried&page=1
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