Silicon valley bank bites the dust 🌪️

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Silicon Valley Bank Bites The Dust

Silicon Valley Bank (SVB) became the 2nd largest bank in US history to fail 😮

SVB: It was 'The bank’ for startups, serving almost 50% of all VC-backed Tech and Life sciences companies in the US! From venture capitalists to private equity, startups and tech companies, all relied on SVB.

By mid-February 2023, the bank had $212B in assets, making it the 16th-largest bank in the US. On Friday, March 10, the bank was closed.

What happened: In simple terms, the bank made a basic mistake. They invested short-term deposits in longer-term, fixed-rate assets.

SVB decided to lock $91B in long-dated securities such as mortgage bonds (MBS) and US Treasuries, with an average yield of ~1.5%.

Then 3 things happened:

1. Hike in Interest rates: Valuation of their $91B investments plummeted, leading to $15B loss, and it gets worse with every rate hike.

2. Reduced inflow of money - The deposit growth slowed down since fewer startups were funded last year.

3. Failure to raise money - They tried, but spooked investors, leading to the bank run.

Key point: Up to $250K in deposits are federally insured via FDIC, meaning they will be accessible by the next business day, Monday 13th March.

But 93% of the bank's $175 billion in deposits are uninsured! It could take weeks or even months before the money is accessible 🤯

Impact: In the short term, thousands of the fastest growing VC-backed startups can’t make payments in next 30 days. That means employees won’t get their paychecks and all operations from marketing to rent-payments will stop!

~10,000 startups banked with SVB, so you could imagine the ripple effect.

In the long term, VCs are calling this an "Extinction level event"!

What's next: This isn't like 2008. There are 2 ways this could play out:

1. SVB get acquired: Out of receivership by another rival bank. The long-dated securities can be sold early at a major loss, but it might not be enough to cover all deposits. Could be a smart move to scoop all SVB customers.

2. US Gov steps in: Though unlikely, but the Gov could step in to guarantee SVB’s deposits. If they don’t, customers in other regional banks would start moving their funds into banks that are ‘too big to fail’.

Tech Roundup
Stay Informed

3D Printed Rocket: Relativity Space will launch the world’s first 3D printed rocket into space!

85% of the rocket components by mass, including the engines are 3D printed. The California-based rocket startup is valued at $4.2B, but hasn’t launched a rocket yet. Let’s hope their first launch makes it to the orbit.

NFTs: We thought NFTs craze would be over by now. But Starbucks sold 2,000 NFTs in 20 minutes, each valued at $100.

Meta: is building a new decentralized, text-based social network. Simply put, a Twitter replacement. The decentralized model could help Meta take on Twitter and Reddit, and remove itself from regulatory scrutiny for content moderation.

Around the Internet
Juicy quick bites

• 💸 Roku: $487 million or ~26% of cash reserve is stuck in SVB!

• 👷🏻‍♂️ 32-Hour: New bill by California’s congressman could reduce the workweek from 40 hours to 32 hours.

• 🤝🏼 LinkedIn: will publish “AI-generated content” as conversation starters to provoke discussions.

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