All-In E119: Silicon Valley Bank implodes: startup extinction event, contagion risk, culpability, and more

Key Points & Discussion Topics

SVB Collapse Timeline:

• SVB announced $1.8B loss from investment sales on March 8
• Bank experienced $42B in withdrawals on March 9 (25% of deposits)
• FDIC took over SVB on March 10 after bank had negative cash balance
• By Friday bank was unable to meet obligations and entered receivership

Root Causes:

• SVB invested heavily in long-duration bonds when interest rates were low
• Rising interest rates significantly devalued these bond holdings
• Duration mismatch between short-term deposits and long-term investments
• Venture debt portfolio (~10% of loans) showing signs of distress

Impact on Startup Ecosystem:

• Gary Tan called it an "extinction level event" for startups
• Thousands of companies unable to access funds above $250k FDIC limit
• Many companies can't make payroll or operating expenses
• VCs scrambling to help portfolio companies with emergency funding

Regulatory Issues:

• Banks not required to mark-to-market certain securities holdings
• Questions about allowing customer deposits to fund venture debt
• Debate over whether $250k FDIC limit is appropriate for business accounts
• Lack of oversight on regional banks compared to major institutions

Proposed Solutions:

• Federal government needs to step in immediately to prevent contagion
• Suggestion for FDIC-like protection for larger business accounts
• Potential acquisition by major bank with government guarantees
• Need for reformed regulations on how banks can invest deposits

Contagion Risk:

• Regional bank stocks already showing significant decline
• Risk of bank runs spreading to other regional banks
• Need for immediate intervention to prevent systemic banking crisis
• Concern about second and third-order effects beyond just tech industry

The group emphasized that this is not about bailing out tech companies or bank shareholders, but about protecting depositors who did nothing wrong and preventing a wider financial crisis. They called for immediate action from regulators and government officials over the weekend to prevent further damage to the innovation ecosystem and broader economy.