In other words, there is a world in which people took better decisions and SVB continued to chug along quite happily. The question is: Is that the world we want?
One view is that it isn’t, and that this collapse, in addition to being a salutary lesson for the tech industry, is an opportunity for the sector to finally break out of its cozy silos and learn to talk to the wider financial system. At some level, SVB collapsed for the same reason that female and Black and Latino founders still struggle to get VC funding, or that shaggy-haired kids manage to sweet-talk people into giving them billions for crypto Ponzi schemes: The tech industry and its financing are about relationships.
There’s surely something archaic, moreover, about tech-specific banking. Tech is everywhere, and if a country like the US wants to remain competitive in the global innovation race, shouldn’t every major bank learn the needs of startups and VCs and build its own tech arm, with branches in all of the country’s main technology hubs?
Something like this could start to happen in the wake of SVB’s failure. Anything I write about how this saga ends is likely to be out of date even before it’s published, but one plausible scenario is that a Wall Street bank buys up SVB, acquiring both its assets and its depositors—the kind of thing that often happens in a bank failure. That would help prevent the startup world from screeching to a halt, and the buyer would gain access to a whole new class of customers. Then maybe other big banks, not to be left out, might start wooing tech founders and investors to their taupe-colored lobbies.
The alternative view, however, is that for all its clubbiness, the Silicon Valley Bank model is actually good for innovation. The problem with the major banks is that “they have one-size-fits-all financial services,” says Robert Hockett, a professor at Cornell Law School. A specialized bank, by contrast, can be thought of “as a kind of credit union for the tech industry,” whose members borrow from and lend to each other, and understand each others’ needs better. SVB was more likely to offer mortgages to startup founders, with their unpredictable income streams, or give them a grace period when cash was short.
Josh Wolfe, of VC firm Lux Capital—one of the 300-plus investment firms that have signed a promise to work with SVB if it is rescued—points out that it’s not only the tech sector that has specialized banking. “Agriculture and farmers have this, real estate as well as transportation and logistics have preferred partners too,” he says. Regional banks that specialize in certain industries “serve a purpose not just for the local companies or industries but also for diffusing risk,” he adds—namely, the risk of banking becoming too concentrated in the hands of a few major players.
If a bigger bank does take over SVB, then, one major question is whether it will keep the name, the branches, and the culture, effectively allowing SVB to continue functioning as its subsidiary, or try to absorb the bank into its larger operations, so that a Citibank or a Chase of Silicon Valley looks just like the ones anywhere else, and startups and venture capitalists can walk into any of them and expect the same service.
The latter might sound like a lovely idea in principle: If you were a giant and somewhat stuffy bank, wouldn’t you leap at the chance to integrate an exciting new sector of the economy into your core business? But in practice, embracing the golden goose too tightly might turn out to be the thing that kills it.