SAN FRANCISCO: The failure of Silicon Valley Bank (SVB) has exposed differences within the typically close-knit venture capital (VC) industry. With some investors blaming their rivals for causing a panic that led to the demise of a cherished upstart business partner.
Many venture capitalists urged their companies to withdraw their cash from the ailing lender during the tumultuous early hours of the bank run on SVB.
Following Friday’s events, several investors publicly criticized their sector for its part in stoking the fires.
Brad Svrluga, a seed investor, tweeted, “I’d like to officially thank my colleagues in the venture community. Whose superb leadership over the past 48 hours provoked a run on deposits at SVB. Ultimately collapsing one of the most significant institutions in our ecosystem.
There isn’t a definite agreement on whether to applaud or criticize VCs who advised founders to withdraw their funds.
Benedikt von Thüngen, founder of the healthcare startup Sanome, said, “It was a tightrope. ” He thinks that businesses had a fiduciary duty to withdraw their capital even though they were generally supportive of the bank.
Some investors clearly grappled with what to do as SVB started to fall. In a tweet, Hustle Fund investor Eric Bahn urged businesses to move their money out of SVB. He later deleted the tweet and made the joke that Twitter CEO Elon Musk should shut down the website entirely.
Would be nice if @Elon Musk would stop tweeting until the banking crisis was under control,” he wrote. “So much FUD here!”
VCs frequently band together. They enjoy making investments in the same businesses. Adhering to the same business trends, and even donning the same performance vests.
In light of this, it is noteworthy how strongly the industry has been divided in the days since the bank run.
Hemant Taneja, CEO of General Catalyst, warned over the weekend that panicking was not the appropriate response.
Investors widely referred to the circumstances leading to the bank’s collapse as “extremely regrettable” in a statement co-signed by more than 600 venture capital firms.
The VCs did, however, agree on one thing: they asked for assistance to protect the deposits of vulnerable firms. In a statement, the group of investors stated that they would keep doing business with SVB and demanded that it be spared.
More than 5,000 founders signed a petition that was distributed by Y Combinator asking US regulators to get involved.
Also, a number of top venture capital firms in the UK signed a statement of support for SVB.
It’s possible that businesses like the renowned Y Combinator urged their founders to share their own stories on Twitter. Because they were aware that appeals for assistance from wealthy investors might not be well received in Washington.
In fact, direct pleas for assistance from VCs didn’t always go down well. I’m not requesting a bailout. David Sacks of Craft Ventures, who also made a video appearance in his podcast over the weekend, tweeted, “I’m asking for banking regulators to ensure the integrity of the system.
Others agreed, saying that “it’s completely rational to have libertarian ideals and still desire a working system.” Hussein Kanji, a partner at London’s Hoxton Ventures, echoed this idea.
“Capitalism collapses if the system collapses.”
Yet, the sentiment received a lot of backlash. Because Sacks, a well-known libertarian, routinely criticized the Biden Administration on his show.
When contacted for response, a spokeswoman for Sacks cited his tweet from Tuesday. In which he said that “even libertarians realize the need for government to avoid bank runs.” And that his ideas were not “pure libertarian.”
Other calls for US intervention, particularly those from the startup community, were also made fun of.
One thing I discovered over the past weekend, according to Michael Arrington, founder of TechCrunch and Arrington Capital, is that when people believe they have lost all of their money, most capitalists quickly convert to socialism.
“Ah, the irony of today’s VCs calling for a government bailout. Who yesterday requested their companies to leave and precipitated the run in the first place,” wrote investor Keval Desai.
Several viewpoints exist regarding the specifics of a bailout.
Not everyone was dissatisfied with VCs. The sentiment entered the mainstream, which was an unexpected development for the business sector.
Together, politicians from opposing parties came to the conclusion that they disliked tech millionaires. A popular anti-VC editorial was published in the political and cultural journal Slate.
Nassim Nicholas Taleb, the man who first used the phrase “black swan event,” lamented the behavior of internet investors even as others used his writings to explain the catastrophe.