30% of YC companies exposed through SVB can’t make payroll in the next 30 days(twitter.com)
twitter.com
30% of YC companies exposed through SVB can’t make payroll in the next 30 days
https://twitter.com/garrytan/status/1634286688922132481
377 comments
I think the idea that tech is going to be set back a decade if a load of YC companies fail is an interesting assesment from the head of YC, and might be interpreted by some as hyperbolic and self-aggrandizing.
>All little startups, tomorrow's Google's and Facebooks, will be extinguished if we don't find a fix.
This is what we call "hubris". Gary needs to settle down.
This is what we call "hubris". Gary needs to settle down.
All respect to Gary, I feel like "extinction level event" is quite hyperbolic. Obviously he cares about seeing YC companies survive but this is not going to wipe out the US startup scene.
As of right now, yes. Give it a week, and it will get sorted out. In all likelihood, the bank will have a new owner by coming Monday/Tuesday and everyone will be able to make the transactions.
Bold of him to assume 30% of YC startups not surviving means "mass extinction" of american startups!
It's not that bad. FDIC:
"All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors. ... As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits."
Those receivership certificates can be sold or borrowed against. The discount shouldn't be large, since there are solid assets, they're just long term. But figuring out how to arrange such deals is obscure, and early offers to buy will probably be at an excessive discount.
This doesn't happen often and it's not a routine type of transaction. Which means you may need expensive corporate lawyers.
"All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors. ... As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits."
Those receivership certificates can be sold or borrowed against. The discount shouldn't be large, since there are solid assets, they're just long term. But figuring out how to arrange such deals is obscure, and early offers to buy will probably be at an excessive discount.
This doesn't happen often and it's not a routine type of transaction. Which means you may need expensive corporate lawyers.
Investor profits threatened by interest rates: “We’re sorry we’re laying you off, we take full responsibility, now gtfo”
Investor profits threatened by unstable silicon valley financial system: “Think of the workers! The sacred obligation of payroll!”
Investor profits threatened by unstable silicon valley financial system: “Think of the workers! The sacred obligation of payroll!”
> This is an extinction level event for startups and will set startups and innovation back by 10 years or more.
I didn't know there was a YC backed startup with an app that lets you directly inhale your own gas. I'm sure that one isn't at any risk of extinction.
I didn't know there was a YC backed startup with an app that lets you directly inhale your own gas. I'm sure that one isn't at any risk of extinction.
Isn't this a similar version of what happened in the Savings and Loans crisis [0]?
Effectively, banks lent money at X%. Then the government raised interest rates. Therefore, you owed your depositors a higher interest rate than you were collecting from your loans.
I know, not exactly the same but both related to the govt raising rates and banks not necessarily anticipating the move.
0 - https://en.wikipedia.org/wiki/Savings_and_loan_crisis
Effectively, banks lent money at X%. Then the government raised interest rates. Therefore, you owed your depositors a higher interest rate than you were collecting from your loans.
I know, not exactly the same but both related to the govt raising rates and banks not necessarily anticipating the move.
0 - https://en.wikipedia.org/wiki/Savings_and_loan_crisis
Good stuff, let it burn. The system is working as intended. People who made very very risky dumb bets are getting punished heavily for it.
Tan, Sacks, etc are basically practicing "never let a crisis go to waste"
They only want to rig the game in their favor. These people weren't advocating things like tougher bank regulations that would have prevented this. They just happen to be on the losing side now and want a bailout.
They only want to rig the game in their favor. These people weren't advocating things like tougher bank regulations that would have prevented this. They just happen to be on the losing side now and want a bailout.
It can be tempting to mock all the VC's freaking out about this, but I genuinely can't imagine how stressful this must be for a lot of people, so I"m willing to extend some grace and give people the benefit of the doubt when they let their emotions get the better of them.
With that said, the government's role in a situation like this is to prevent contagion, not make you whole. If a bunch of startups go under over this then that sucks, but that alone doesn't come close to justifying any sort of government bailout.
With that said, the government's role in a situation like this is to prevent contagion, not make you whole. If a bunch of startups go under over this then that sucks, but that alone doesn't come close to justifying any sort of government bailout.
VCs have plenty of billions let's have them do the bail-out this time around.
Per the CEO of your favorite orange site, if somebody here doesn't know who this is (I didn't).
Things don't look good right now.
Things don't look good right now.
Forgive the naive question, but why did so many companies put all their cash in one account instead of spreading it between two or more independent banks?
Founders can take a loan on the IOUs from the FDIC from VCs and make payroll. Worth watching who goes this way and who holds out, doesn't pay their employees, and begs the federal government to pay them.
Doesn't Y/C have money for these sorts of things? ... seems like a bad situation for them as well since it will wipe out a lot of their holdings
Are you guys serious ? I saw this and David Sacks tweet with similar message.
When times are good - they are the first to criticize government reach and taxes which are spend on other people. 100% capitalism etc.
When times get bad - we need government to step in and save us !
Ridiculous.
Besides, it seems the situation is nowhere near as bad as he paints it.
When times are good - they are the first to criticize government reach and taxes which are spend on other people. 100% capitalism etc.
When times get bad - we need government to step in and save us !
Ridiculous.
Besides, it seems the situation is nowhere near as bad as he paints it.
It's going to be a great reset for the tech startup landscape. If you can't pay your employees, your startup is going to zero.
Besides founders, who is going to work for free? In this economy, I wouldn't even risk the "promise" that startups will pay up. If all or most of their assets were held in SIVB and were not able to withdraw or transfer out, then they are effectively hosed.
Good luck folks.
Besides founders, who is going to work for free? In this economy, I wouldn't even risk the "promise" that startups will pay up. If all or most of their assets were held in SIVB and were not able to withdraw or transfer out, then they are effectively hosed.
Good luck folks.
Thinking back to the financial crisis when the idea of protecting home owners was floated and we had to endure finance guys ranting about greedy home owners and their 2nd bathrooms.
remember this is the same guy that titles his self produced videos things like "my $200m startup mistake" in reference to deciding to work at Microsoft
30% of all YC companies, or 30% of YC companies banking with SVB? The phrasing implies the latter.
I disagree with his subpoints, but I love how Garry speaks from the heart and doesn't filter it through a PR firm or lawyers.
I do agree with his main point: make the receivership as short as possible. I'd hope everyone can agree on that. (Meanwhile, I'm still waiting months to log back into my https://ftx.us/ account).
I disagree with this: "This is an extinction level event for startups and will set startups and innovation back by 10 years or more. " I could easily see it being the exact opposite.
I do agree with his main point: make the receivership as short as possible. I'd hope everyone can agree on that. (Meanwhile, I'm still waiting months to log back into my https://ftx.us/ account).
I disagree with this: "This is an extinction level event for startups and will set startups and innovation back by 10 years or more. " I could easily see it being the exact opposite.
Why exactly can't they make payroll?
Because their funds are frozen? Or they assume their funds are completely gone?
Because their funds are frozen? Or they assume their funds are completely gone?
This situation is not that bad and the solution is a mix of short-term belt-tightening followed by companies raising more equity. It really seems this is obvious, and that Gary is trying to avoid it.
Companies will not "go extinct". Yes, they _may_ have delays making payroll, but nothing that employees cannot work through. And I doubt even that. Regulators will make some fraction of deposits available in short order and companies can function from that. It will be tight and a nuisance but it's manageable. Even if we stipulate that the next generation of tech innovation was banking at SVB, it will survive.
But yes there will be actual deposit losses. At a guess these will be no more than 30%, which will take some time to emerge. No promising startup will be unable to raise capital to fill the gap. What, investors won't kick in another 30% (if that) for an idea they like?
Gary's tweets about "small companies lacking treasury management" are disingenuous. The whole point of the VC ecosystem and institutions like YCombinator is to provide entrepreneurs with business support and advice they otherwise lack. Help with legal structure, accounting, hiring, benefits, etc is very much part of the VC value proposition. Well, cash management is exactly in that department. Wariness about cash management and banking risk is actually part of Gary's job. Apparently he didn't do it very well here. Well, we all make mistakes, seriously -- but I don't expect taxpayers to pay for mine.
This really seems like fear mongering and special pleading to avoid equity dilution at the taxpayer's expense. Really I thought better of YC.
Companies will not "go extinct". Yes, they _may_ have delays making payroll, but nothing that employees cannot work through. And I doubt even that. Regulators will make some fraction of deposits available in short order and companies can function from that. It will be tight and a nuisance but it's manageable. Even if we stipulate that the next generation of tech innovation was banking at SVB, it will survive.
But yes there will be actual deposit losses. At a guess these will be no more than 30%, which will take some time to emerge. No promising startup will be unable to raise capital to fill the gap. What, investors won't kick in another 30% (if that) for an idea they like?
Gary's tweets about "small companies lacking treasury management" are disingenuous. The whole point of the VC ecosystem and institutions like YCombinator is to provide entrepreneurs with business support and advice they otherwise lack. Help with legal structure, accounting, hiring, benefits, etc is very much part of the VC value proposition. Well, cash management is exactly in that department. Wariness about cash management and banking risk is actually part of Gary's job. Apparently he didn't do it very well here. Well, we all make mistakes, seriously -- but I don't expect taxpayers to pay for mine.
This really seems like fear mongering and special pleading to avoid equity dilution at the taxpayer's expense. Really I thought better of YC.
I guess SVB was too busy building the VC pyramid scheme to care about asset and money management.
I wonder what the sentiment of YC startups that have access to bookface [0] is right now. I don't think it is happy days there.
[0] https://bookface.ycombinator.com/
I wonder what the sentiment of YC startups that have access to bookface [0] is right now. I don't think it is happy days there.
[0] https://bookface.ycombinator.com/
“SVB failure” stands for Silicon Valley Bank collapse.
> Silicon Valley Bank collapsed on Friday after a run on deposits drove the Northern California institution into insolvency, marking the largest bank failure since the financial crisis.
Source: https://www.politico.com/news/2023/03/10/silicon-valley-bank...
Discussed at: https://news.ycombinator.com/item?id=35096877
> Silicon Valley Bank collapsed on Friday after a run on deposits drove the Northern California institution into insolvency, marking the largest bank failure since the financial crisis.
Source: https://www.politico.com/news/2023/03/10/silicon-valley-bank...
Discussed at: https://news.ycombinator.com/item?id=35096877
In this situation, the reserve bank absolutely should take over SVB's assets and liabilities, that is what its for and what it can do easily and painlessly. The govt is not involved and no tax dollars are involved. No customer of SVB should be out of pocket and certainly no employee of a customer of SVB should be. The losers are the shareholders of SVB as their equity is wiped out and some of SVB's employees will lose their jobs.
This is actually an interesting time. A make or break moment for Jerome Powell. Will he reverse? Can he tolerate the pain? Monday approaches.
Even if the extremely unlikely scenario plays out and companies are unable to make payroll, employees are very unlikely to walk out, it would make an inconvenient situation (no pay) much worse (terminated) in an already challenging economic climate. Anybody with the financial means to walk away because payroll has been missed is someone with the financial means to ride out a few weeks waiting to be paid.
We will see many startups fall in the next few weeks + months, and many will attribute it to the failure of SVB, but SVB’s failure is a symptom of the broader economic environment, not a cause, and the same factors that caused SVB to fail are already hurting startups — like the difficult fundraising environment at the moment. SVB will be an easy scapegoat, “we didn’t fail, it was SVB’s fault!”
Most any startup that attributes its failure to SVB’s collapse would have been dead in a few months anyway.