SVB groupthink

Watching the collapse of SVB over the past several days as a neutral observer has been an interesting experience. I used to be in banking and looked at SVB as a potentially cool career destination at some point and then later working in startups, they seemed like an ideal startup banking partner. In the end though, as a solo entrepreneur with no VC funding, SVB was not a banking provider that was within my reach.

This makes me pretty neutral in my assessment and apart from clearly poor risk management, SVB is also a lesson in VC groupthink. You read the stories of how VC's worked in parternership to shovel massive deposits towards SVB as a preferred banking partner and how they essentially worked together to pump up SVB's balance sheet in good times. In the process, they created something that was valuable to the Silicon Valley community as a bank that knew startups, knew how to provide banking services to their operations and were giving favorable conditions on venture debt.

Yet given all of this, the VC community was very quick to turn on SVB at the first sign of a wobble. SVB's management clearly didn't manage assets well to balance their massive deposit book, and when they botched a capital raise to fill in the hole in their balance sheet, all of the VC's essentially told startups to pull their deposits all at once. If it were not for this bank-run frenzy, surely the SVB franchise had enough value in it to find investors for a capital raise and all of this could have been avoided. Yet groupthink led all of the VC's involved into a poor result where they not only had to endure a cash crisis for a few days, but they also lost a long-term pillar of their venture community that took them years of support to build up.

Given this bad result that comes directly from VC groupthink, it makes you understand how firms were rushing into businesses like WeWork with questionable fundamentals at extremely rich valuations. It's just another reminder that despite lots of intelligent individuals, Silicon Valley as a whole does not have all of the answers and quite often they end up making the wrong decision, especially when the herd gets moving somewhere all at once.