Bank failure hurts tech economy
Over the course of about 24 hours, starting Thursday, Silicon Valley Bank experienced one of the most dramatic bank runs in global financial history. Whispers of structural weakness – fueled by a gaffe in the timing and communications of a loss-making sale of some of its assets – provoked panic.
In the digital age, among a small community in the San Francisco Bay area who look at their phones more than their surroundings, this was enough to mean trouble.
President Joe Biden’s announcement Monday that all SVB depositors will be protected, and not at taxpayer expense, was welcome and necessary. The SVB collapse threatened to topple other banks, whether specialized players like SVB or regional banks.
As the Federal Deposit Insurance Corporation, which now controls the bank, looks for a buyer, those of us who work in the innovation economy should have a single hope: that the bank’s new owner will send a strong message of support for the startup companies that have been the backbone of American prosperity and security for more than 75 years – and that are critical to national security, fighting climate change and re-homing America’s supply chain.
The crisis at SVB involves red states as well as blue, and the whole American workforce as much as tech workers. Its effects would have been felt far from Silicon Valley, and in every part of the economy.
The $175.4 billion in deposits imperiled at SVB touches perhaps 10 times that amount of economic activity nationally: nurses working on clinical trials; pipe fitters; welders; truck drivers; lab technicians; small manufacturers building the future in places such as Ohio, North Carolina, Utah and Texas – and the cafes, dentists, car dealers and real estate agents that SVB-banked companies support.
The startups that were thrown into chaos are the ones building the safer nuclear reactors, the new battery materials, the automated recycling systems, the future of abundant clean water and the sustainable aviation fuels called for in the Inflation Reduction Act.
They are delivering breakthrough intelligence and defense capabilities more effectively than the traditional defense industry. They are ensuring that medicines and medical technology are available in a national health crisis.
The stability of the innovation economy is a national priority.
Technological progress benefited all Americans
Over the next few months, we’ll learn what Silicon Valley Bank might have done to prevent the run on the financial institution. But what should not be lost in this moment is that for 40 years, SVB has understood and reliably supported waves and waves of technological progress that benefited all Americans.
From the entire set of technologies in microchips, storage and networking that were prerequisites for the internet and every compute service on it driving American productivity (including Google, Amazon Web Services and Microsoft Azure), to lifesaving breakthroughs in genomics and precision medicines (including much of what made COVID-19 vaccines possible), to the building-block innovations of today’s largescale climate tech, Silicon Valley Bank was there to lend to the young companies creating them when generally larger institutions simply could not be bothered. For decades.
These investments have delivered huge economic impact for America, hundreds of thousands of high-paying jobs and improved quality of life for people around the world – and the ecosystems that support life on Earth.
Likewise, SVB’s now-absorbed, previously independent cousin institutions in investment banking like H&Q and Alex Brown were willing to take risks creating liquidity for young companies when larger peers would not give them the time of day.
The absence of those investment banks and the slow extinction of more nurturing public markets has had an impact on both the nature and scope of innovation that makes it to market. It also has removed opportunities for middleclass Americans to “buy in early” on promising public stocks in companies that actually make things of value.
SVB doesn’t need a bailout, just support from customers
A protracted or negative outcome to this crisis won’t cripple technological innovation, but it would replace the acceleration of innovation with a brake, one that neither America’s national security nor its resilience to the climate emergency can afford.
Happily, Silicon Valley Bank does not need a taxpayer-footed bailout: just customers who have its back, just as it has had theirs.
Here, signs are promising: Hundreds of venture capital firms, ours among them, have signed a letter of support for SVB at this critical hour.
Silicon Valley must continue to have a bank as bold as the American dream.