3 Lessons From the Collapse of Silicon Valley Bank
3 Lessons From the Collapse of Silicon Valley Bank
for founders and investors
Happy Friday!
It’s been 15 years. The recent collapse of Silicon Valley Bank (SVB) has brought banks back to the top of the headlines. We’re currently witnessing a historic pivot in the financial and banking industries.
Instead of explaining what happened (outlined better by some of the Wall Street GOATS — Ben Thompson and Matt Levine), I wanted to highlight the most important takeaways I’ve learned from the demise of SVB that should be relevant to founders and investors.
If you want to write for Sports, Tech, Biz or have any feedback, ideas, or suggestions for future editions, send me an email or drop me a message on Twitter @Ronenain!
3 Lessons From the Collapse of Silicon Valley Bank
Technology and Information Flow at Unprecedented Speeds
Last Thursday, SVB’s customers withdrew $42 billion in one day. In contrast, the previous bank run in the US was Washington Mutual’s in 08’, where customers withdrew $16.7 billion in 10 days.
While social media contributes greatly to access and flow of information, the concentrated customer base of SVB — namely, VCs, startups, and tech companies — also accelerated the speed of the bank run. VCs warned all of their portfolio companies, advising them to withdraw their funds from SVB, further accelerating the bank run.
The speed at which things happen today emphasizes the value of staying up-to-date with curated insights that block the noise from the signal from relevant and reliable sources of information.
Smart People Can Be Wrong Too
Besides ignoring the advice from the TV personalities of financial news providers — we should be extra mindful of almost anything anyone with a platform says.
When news of potential weaknesses in SVB's balance sheet broke out, smart analysts and bankers from top institutions were jumping on different finance media to talk about liquidity ratios and safety nets that compared SVB to how other banks collapsed during the financial crisis of 08’.
“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.” — Warren Buffett.
In the end, it didn’t matter. Even with access to information from some of the brightest minds on Wall Street, we must not take anything for granted. Mainly because no two crises are the same, and past performance doesn’t mean anything for the future.
Buy The Rumor, Sell the News
Within trading, this expression means that markets move in anticipation of something happening before it happens.
In other words, if good news is expected sometime in the future, the price will often move higher in anticipation of that date rather than after.
This lesson can also be applied to decision-making — if you hear a rumor (again, from a reliable and fast source of information) that can significantly directly impact your capital, assets, company, or holdings — make sure you take action before it becomes a headline.
What’s next?
We’re going through highly volatile times, and new things are emerging every day. By this time next week, there could be another massive bank going bust. Keeping a close eye on the situation by following the right sources of information is vital to understand the transformation and further effects of the rate hike.
I curated a list of sources in finance and capital markets on Twitter. You can follow the list here.