by The tech industry got what it wanted on Sunday when the federal government announced it would ensure Silicon Valley Bank depositors get all their money back after a run that crippled the institution. Now, tech people are discovering the price the industry will have to pay in return — including damaged reputations, political anger and wounded pride.
Tech workers, startup executives and wealthy investors are bracing for a possible reckoning after the Biden administration guaranteed that SVB depositors would have access to all their funds even through the Federal Deposit Insurance Corp.’s $250,000 guaranteed amount.
The need for urgent government action was the latest black eye for an industry whose reputation has taken repeated hits in recent years and runs counter to the anti-government, anti-regulation ethos many tech investors have preached.
Billionaire venture capitalists such as Peter Thiel faced accusations of precipitating the crisis by advising startups last week to pull money from the bank, while other tech figures have faced accusations of hypocrisy for opposing government action for others and then demanding quick help for themselves.
Margaret O’Mara, a technology industry historian and professor at the University of Washington, said that after years of scrutiny from politicians and regulators, many people in Silicon Valley thought they were owed a bailout.
“There’s this kind of defense of, ‘Look, we’re this innovation economy, and we’ve contributed so much, and there’s no question that this needs to be addressed,'” he said.
The potential fallout could include new regulations, class-action suits and further damage to the reputation of an industry that has had plenty — all on top of the massive layoffs plaguing tech companies.
David Sachs, investor and frequent critic of the Biden administration, who has been among the loudest voices on the Internet seeking help for the technology industry, defended himself this week, saying he was only reacting to a crisis after it had started. He accused the crisis over mismanagement in the bank and the increase in interest rates.
“This is shooting the messenger,” he said during an appearance on CNBC on Monday. “We were drawing attention to a problem that needed to be solved immediately. I think it was constructive.”
While other regional banks are now under scrutiny, SVB was in some ways uniquely vulnerable. Founded in 1983 in Northern California, the bank was closely associated with a volatile industry and held operational cash for many untested startups. An unusually high share of its deposits were uninsured by federal regulators — about 89% in December.
Investors and small businesses rallied to the bank’s defense over the weekend, writing letters and signing petitions to Congress, but failed to prevent the collapse.
“Where did somebody say, ‘We know the interest rate environment is going to change. Maybe we should try a different strategy?” O’Mara said.
The fact that California’s brightest technical and financial minds didn’t see the problem coming — let alone stop it — wasn’t lost on many observers, and in fact, the bank’s CEO Greg Becker had called for lighter regulations in 2015.
“Our society desperately needs to allow irresponsible, arrogant VCs and techbros to experience truly painful consequences for their failures,” said Faine Greenwood, a data scientist and drone researcher. He wrote on Twitter.
Some worry that the tech industry isn’t nominating its best representatives.
“There are certain voices in social media that are loud and shrill and don’t talk about technology,” Om Malik, a former tech journalist who is now an investor at True Ventures, said in a phone interview.
“All the real problems we faced over the weekend as a community were faced by people who weren’t on Twitter,” he said. Credit should go to people who worked behind the scenes, including Silicon Valley Bank employees who have expertise in the startup world, he said.
It’s not clear to what extent investors and other tech influencers caused the crisis, but by Friday morning, some of them were advising their portfolio companies to withdraw deposits from SVB – turning the runaway bank from threat to reality .
For some, it was an indictment of the entire culture of Silicon Valley, the geographic region roughly centered on the southwest coast of San Francisco Bay.
“I don’t know who needs to hear this, but if the wealthiest people in your community start the bank run instead of stepping in to end it, what you have on your hands is not really ‘a community,'” EW Niedermeyer, author a book about Tesla, He wrote on Twitter.
Philip Rosedale, founder of virtual reality platform Second Life, said the banking operation was an example of venture capital acting out of self-interest and mistrust of each other.
“Imagine if all these VCs were all in one room,” he said in an interview on the sidelines of the South by Southwest tech conference in Austin, Texas, as the crisis unfolded.
“Think about what everybody else would say about the one guy who says, ‘I’m telling all my people to pull their money right now,'” he said.
By Monday, some venture capitalists had stepped forward to celebrate the bailout. Ron Conway, a prominent San Francisco venture capitalist, said in an email that his investment firm “was able to develop its business and policy/government relations network to pursue a positive outcome to help thousands of its small business clients SVB to resume business as normal. ”
At a dinner Friday in San Francisco, he had made his case to former House Speaker Nancy Pelosi and former President Barack Obama, according to the Puck news website, which called the bailout “The Ron Conway Bailout.”
Other investors, however, are ready to push back against the criticism. Sriram Krishnan, general partner at venture capital firm Andreessen Horowitz, said on Twitter that he had realized in recent days that people were underestimating the value of the tech industry.
“We have to do a better job of telling our story or our enemies will do it for us,” he said. he said. He did not say who the enemies were and did not respond to an interview request.
