You’ve probably seen the headlines regarding the Silicon Valley Bank crash. This will be a landmark (and horrible!) case study for MBA students worldwide.
I suspect that when the dust settles and a thoughtful analysis is complete, we’ll learn that the reasons behind the SVB melt-down are a combination of macro-economic factors and self-inflicted wounds. That said, it has enormous implications for the venture market and for those of us interested in advancing innovative, and particularly critical technologies (aka DeepTech).
The thing to remember about venture is that it’s a 1% business. Venture Capital represents 1% of US AUM, and less than one-half of 1% of startups get venture funding. But of those who do, 1% of startups deliver an outsized proportion of venture returns (e.g. unicorns).
The fact that one small bank, in such a tiny industry, has such an outsized influence on US innovation is highly problematic. It happened because commercial financial institutions aren’t structured to bank small, high-risk, companies without assets to collateralize. I was an SVB client and the experience was uneven, but trust me, the options for ‘small business banking’ are worse.
It underscores the critical importance of industrial policy coupled with patient capital. The big audacious bets to solve the world’s greatest challenges are going to struggle even more to get the resources they need to grow in the coming years.
And we need to leverage every tool in the kit to help those in a position to invest to do so. That’s why I’m so passionate about the concept of using data and contextualized analytics & benchmarks to enable more investors to assess and underwrite the risks of critical technology startups and funds.
Quality risk / reward assessments are essential to society: poor or uneven implementation leads to bad bets OR massive underinvestment in promising innovations and innovators. We’re seeing this today with SVB, and we’ve encountered this repeatedly in our DeepTech work due to limited data and opaque performance models. It’s critical to our future that we close this gap and make it easier for investors to confidently place capital into the nation’s most advanced technology startups.
#End Rant. The good news is that as I type there are countless inventors and entrepreneurs doggedly pursuing their innovations, and there are savvy investors and smart supporters backing them along the way, across the US and around the world. I’m looking forward to seeing how the next generation of financial and policy pioneers tackle this mess, which is also a great opportunity. I’m in the trenches with them.
Note: I have no insider knowledge of SVB and have never worked for the bank (or any bank). I was a client of the bank in a prior firm and have held small business accounts at other institutions as well.