Investor Marc Suster says “a bunch” of bad actors in VC destroyed Silicon Valley Bank

Yesterday around noon in Los Angeles, investor Marc Soster of venture capital firm Upfront Ventures began urging:calmon Twitter. It was a Silicon Valley bank She got her message wrong On Wednesday about trying to shore up its balance sheet, the startup’s founders began to fear that their deposits in the 40-year-old tech-friendly enterprise were at risk. “MCrude in the VC community needs to speak out to calm the panic Soster wrote to @SVB_Financial, saying he believes in the bank’s health and arguing that the greatest risk to start-ups, the venture capital the bank has long catered to, and to SVB itself would be a “mass panic”.

As we now know, Soster was already too late. The industry was nervous, and CEO Greg Baker, calmly addressing the bank’s clients on a Zoom call late yesterday morning, managed to scare them even more when he uttered the words: “The last thing we need to do is panic.”

By this morning, after trading at Silicon Valley Bank halted to stem the free fall of shares — they had already fallen more than 80% between Wednesday and Thursday — the California Department of Financial Protection and Innovation closed the bank. It then moved it under the control of the FDIC, which outlines next steps as the bank’s customers grapple with financial security. How to pay their bills in the meantime.

Today, we asked Suster about his advice yesterday and whether or not he regrets it. During our conversation, he was also echoed by a growing number of others in the startup world who are getting started pointing finger In what they insist, it was a small number of venture capitalists that set off alarm bells across the startup ecosystem — bringing about the collapse of SVB but also, potentially, causing transmission. Here is that interview, lightly edited for length and clarity.

TC: You were on CNBC this morning where you said that you think portfolio companies should have diversified where they hold their money all along. But my understanding is that Silicon Valley Bank required many startups to have an exclusive relationship with it.

Michael: In general SVB doesn’t require exclusivity unless you get debt. The problem is that many people get debts, and we warn you [portfolio companies] About this for a year.

What percentage of startups do you think have diversified banking relationships?

About half of them have a relationship with SVB. Maybe half of those have alternate accounts.

You were clearly supporting SVB yesterday as everyone was racing for the exits. Is SVB an investor in your venture firm?


Did Upfront Get Its Money From SVB?


Are you worried because you didn’t get your money?

No, I heard about the $12 billion exit from SVB yesterday, and SVB has just under $200 billion in assets, which is 6.5% to 7% of [its assets] who left in one day. It’s not catastrophic, but the Fed knew it was going to accelerate. They don’t want to run a bank, so I think the Fed, ideally, would like someone to buy SBV, and I suspect they’re talking to every bank and doing a review as we speak.

Are you surprised that no one has stepped forward yet?

Imagine you have a whole group of people evaluating the purchase of a bank. How do you rate it when you don’t know how much it runs? How do you catch a falling knife? by [shutting down SVB this morning], Fed prevented the knife from falling; Now, I think we’ll see an orderly sell-off by Sunday. JPMorgan, Bank of America, Morgan Stanley, [someone will step in to buy it]. Then I think the panic will stop, because if you quit SVB because you’re worried about SVB, it won’t be a concern anymore.

How will SVB be evaluated by a buyer? Its market value was about $6.3 billion when it closed this morning.

A bank’s valuation is linked to its assets but is mostly unrelated. You have debt holders and equity holders, and if a company goes bankrupt, the debt holders get paid before the equity holders. What people were betting on with SVB was that the common shareholders wouldn’t get anything because SVB was on the brink of bankruptcy; [its market cap and assets] They became unattached because they didn’t think SBV would survive.

What matters is: Are there assets and is there value here? SVB is a cash-rich and well-managed tech industry lending firm, and these clients are desirable. SVB serves not only startups, but venture capital funds and private equity funds. Imagine that with one stroke you can reach them? That’s why a bunch of companies are working with the Federal Reserve, trying to find out [what’s what] At present, including a host of hedge funds and other large private equity funds, as well as banks.

Will a big bank face antitrust issues here, trying to take over SVB?

The Fed has one goal, which is to avoid infection. Every regional or unrestricted bank is now taking a beating. That’s why they will force something to happen on Monday.

Don’t you think bankruptcy is the next step? Isn’t that what happened with Washington Mutual? Buyers want to buy good assets and leave all liabilities to the government, right?

This is not an official bankruptcy, but it is as close as it gets. will [a buyer] Giving money to stockholders? I think these stocks could go to zero; An acquirer may decide it does not want to bail out shareholders, but shareholders are different from depositors.

Speaking of which, would you extend bridging loan advances to any startup that has lost access to its funds for the time being in SVB?

This is 24 hours old. We’ll probably start those conversations next week. Our CEOs told us that if you’re in a position where you need a bridge loan in the next couple of weeks, you should get your board together, because that’s a decision that the board has to come to. If people believe in your prospects, it shouldn’t be hard to get paid for one or two paychecks. If they don’t, it may hasten your demise, however [going out of business] It probably will happen anyway.

I have to wonder if you’re publicly trying to mollify your peers while privately advising founders to move their money out of SVB, just to be on the safe side.

I assure you I didn’t. Every VC I know has been telling people, “We think your deposits are safe with SVB. It would be wise to take some money because you could have a liquidity crunch for a week, but we don’t think a bank run makes sense.” A professional venture capitalist with experience in Silicon Valley realizes Bank management hurts everyone.

Are you saying that the partners at Founders Fund, Coatue and Y Combinator are not very experienced and professional venture capitalists? They were among the companies that reportedly advised their startups to divest their assets.

I said a bunch of people were ordering people to run to the door and congratulate themselves on that. Leave aside what this does for SVB. If the Fed doesn’t step up, how many more bankruptcies will there be and other spillovers? These adventurers congratulate themselves. I see emails from venture capitalists to liquidity providers — I work for some companies — and they’re forwarding these things like, “Aren’t you too smart?”

How many of your companies will not be able to provide payroll due to this closure?

I think this has been resolved by Monday or Tuesday and will affect very few people. If it extends beyond a week or two, it will affect a lot of companies across the industry. Anyone with payroll today or Monday needs investors to make quick investor loans or delay payroll by 48 hours.

Can this really be solved so quickly?

What gives me confidence is that the Fed knows [the implications if it doesn’t].

Who is most affected here immediately?

SVB employees who have large amounts of money in the company’s equity because they believe in their employer. my contributors.

Who stands to take advantage of this situation? Where are you going to transfer your money?

I think you’re more likely to see people trusting the big banks rather than the smaller ones. This is what I personally recommend. Personally I have already spread my money across bank accounts as I am subject to FDIC restrictions and a cautious person. I am already heavily involved in treasury bills and other safe high yielding assets. As for Upfront, we deal with SBV and have accounts linked to Morgan Stanley. We will probably open two or three accounts with other banks next week.

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