Late last Saturday night, Jason Calacanis, a prominent internet entrepreneur and investor, hit the caps button on his keyboard and tweeted out a warning about the collapse of Silicon Valley Bank.
“YOU SHOULD BE ABSOLUTELY TERRIFIED RIGHT NOW — THAT IS THE PROPER REACTION TO A BANK RUN AND CONTAGION,” he wrote. “THIS WILL SPIRAL INTO CHAOS”.
The rapid fall of the tech sector’s regional bank has upended social mores in the Valley. Investors like Calacanis who typically upbraid regulators for stifling innovation turned to Washington in their hour of need.
Most warned of severe repercussions if depositors lost permanent access to their money. Hedge fund manager Bill Ackman wrote on Twitter that the consequence of government failure to guarantee SVB deposits would be “vast and profound”. Y Combinator chief executive Garry Tan called the bank’s failure an extinction level event for start-ups — a few days before the tech accelerator laid off 20 per cent of its own staff in a non-SVB linked move.
David Sacks, general partner of VC firm Craft Ventures, who like Calacanis is a close associate of Elon Musk and has a large following on Twitter, warned of further bank runs. “Place SVB with a Top 4 bank,” he tweeted. “Do this before Monday open or there will be contagion and the crisis will spread.”
Their appeals worked. Two days after the Federal Deposit Insurance Corporation took control of the bank’s assets, the Treasury, Federal Reserve, and FDIC announced on Monday morning that depositors would have access to all of their money.
Relief has been tempered, however, by criticism of the role that some venture capitalists played in the crisis at SVB. When concerns about SVB’s balance sheet rose last week, VC firms including Peter Thiel’s Founders Fund urged portfolio companies to act in their own best interests and remove funds. This helped to trigger a run on the bank.
There is a broader charge of hypocrisy towards some of the venture capitalists who chafe against government regulation of tech but demanded regulators step in to help SVB depositors. Going online to plead for support “was an ‘atheist in a foxhole’ moment”, says one executive at a venture capital fund who was derisive of his peers’ conversion.
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