The tech industry got what it wanted Sunday when the federal government announced it would ensure Silicon Valley Bank depositors would get all their funds back following a run that crippled the institution. Now, people in tech are finding out the price the sector will have to pay in return — including a damaged reputation, political anger and wounded pride.
Tech employees, startup executives and wealthy investors are girding for a possible reckoning after the Biden administration guaranteed that SVB depositors would be able to access all their funds even over the Federal Deposit Insurance Corp. guaranteed amount of $250,000.
The need for the emergency government action was the latest black eye for an industry whose reputation has taken repeated punches in the past few years, and it ran counter to the anti-government, anti-regulation ethos that many tech investors have preached.
Billionaire venture capitalists such as Peter Thiel have faced accusations that they accelerated the crisis by advising startups last week to pull money from the bank, while other tech figures have faced charges of hypocrisy for opposing government action for others and then demanding swift help for themselves.
Margaret O’Mara, a tech industry historian and a 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 rescue.
“There’s this kind of defensiveness: ‘Look, we are this innovation economy, and we have contributed so much, and there’s no question that this should be addressed,’” she said.
The possible fallout could include new regulations, class-action suits and further reputational damage for an industry that’s had lots of it — all on top of the massive layoffs roiling tech companies.
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David Sacks, an investor and frequent critic of the Biden administration who was among the loudest voices online urging help for the tech industry, defended himself this week, saying he was only reacting to a crisis after it had started. He blamed the crisis on mismanagement at the bank and rising 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 that was constructive.”
While other regional banks are now receiving scrutiny, SVB was in some ways uniquely vulnerable. Founded in 1983 in Northern California, the bank was closely tied to one volatile industry and held operating cash for many untested startups. An unusually high share of its deposits were uninsured by federal regulators — about 89% as of December.
Investors and small businesses alike rallied to the bank’s defense over the weekend, writing letters and signing petitions to Congress, but they weren’t able to avert the collapse.
“Where was someone saying, ‘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 trouble coming — let alone stop it — wasn’t lost on many observers and, in fact, the bank’s CEO Greg Becker had called for more lenient regulations in 2015.
“Our society desperately needs to allow irresponsible, arrogant VCs and techbros to experience genuinely painful consequences for their failures,” Faine Greenwood, a data scientist and drone researcher, wrote on Twitter.
Some worry that the tech industry isn’t putting forward its best spokespeople.
“There are certain voices on social media that are loud and shrill and they don’t speak for tech,” Om Malik, a former technology journalist who’s now an investor at True Ventures, said in a phone interview.
“All of the actual problems that we experienced over the weekend as a community were taken care of by people who were not on Twitter,” he said. Credit should go to people who were working behind the scenes, including rank-and-file employees of Silicon Valley Bank who have expertise in the startup world, he said.
It’s not clear the extent to which investors and other tech influencers caused the crisis, but by Friday morning, a number of them were advising companies in their portfolio to withdraw deposits from SVB — turning the bank run from a threat into a reality.
To some, it was an indictment of the whole culture of Silicon Valley, the geographic region that’s roughly centered on the southwestern shore of San Francisco Bay.
“I don’t know who needs to hear this, but if the wealthiest people in your community kick off the bank run instead of stepping in to end it, what you have on your hands is not in fact ‘a community,’” E.W. Niedermeyer, author of a book about Tesla, wrote on Twitter.
Philip Rosedale, the founder of the virtual reality platform Second Life, said the bank run was an example of venture capitalists acting out of self-interest and distrust of each other.
“Imagine if all these VCs had all been in one room,” he said in an interview on the sidelines of South by Southwest, the Austin, Texas, tech conference, as the crisis unfolded.
“Think what everybody else would have said about the one guy who’s like, ‘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 rescue. Ron Conway, a prominent San Francisco venture capitalist, said in an email that his investment firm “was able to deploy its business and policy/government relationship network to pursue a positive outcome to help thousands of small business clients of SVB resume business with normalcy.”
At a dinner Friday in San Francisco, he had pressed his case to former House Speaker Nancy Pelosi and former President Barack Obama, according to the news website Puck, which labeled the rescue “The Ron Conway Bailout.”
Other investors, though, are prepared to push back against the criticism. Sriram Krishnan, a general partner at the venture capital firm Andreessen Horowitz, said on Twitter that he had realized in the past few days that people didn’t appreciate the tech industry’s value.
“We need to do a better job of telling our story or our enemies will do it for us,” he said. He did not say who the enemies were, and he did not respond to an interview request.