Early Thoughts on the Silicon Valley Bank Demolition

Lots going on here so I will try to be brief and just present a few initial thoughts. We’ll get a lot more information on Monday so here are just some thought sketches that respond to, at least, the story we have been told so far. 

I look forward to getting more information that will flesh out, moderate or change this analysis, but I do think there are (as always) some structural and material issues that are being ignored at this time. 

My first point is that the reasons given for this whole thing are extremely fucking shady and they are not passing the sniff test. 

The story is that the bank over-invested in bonds in 2021 when we had a huge amount of startup and tech success and activity, records all around. They in turn invested lot of money into bonds, which was a reasonable thing at the time, but when the interest rates went up, they took a 1.8 billion dollar hit on the bonds when they (responsibly) sold them off, despite some loss. Silicon Valley Bank announced it was raising some capital, about 2 billion, in order to cover the difference.

The official story is that venture capitalists, including Founder’s Fund and a16z, heard the news about SVB raising $2 billion of capital to address the loss, freaked out, and told their entire portfolios to bail fast. This led to a run on the bank that is ACTUALLY what caused the crisis, sources agree, and shares fell by 60%, and the federal government stepped in to shut it down. Now startups are scrambling and panicking. 

The first thing I want to highlight, and I’m going to say this very slowly: 

Reports from independent analysts have highlighted multiple times that Silicon Valley Bank was NOT having a liquidity crisis. 

I repeat. Reports from independent analysts have highlighted multiple times that Silicon Valley Bank was NOT having a liquidity crisis. Silicon Valley Bank itself had stated that there was not a liquidity issue or that there was any kind of emergency. Nothing of the sort. There was not a liquidity crisis. There was… no crisis at all. There was just a bank making some totally reasonable decisions to re-balance some investments in acknowledgement of the rising interest rates.

On Thursday, before things really went nuts, we heard this: 

“Despite the latest concerns, analysts… said the bank had received significant proceeds from selling securities and raising capital. ‘We do not believe that SIVB is in a liquidity crisis,’ Wedbush analyst David Chiaverini said in a report.”

Silicon Valley Bank did not itself communicate any kind of crisis because… there was no crisis at all. 

Silicon Valley Bank was taking responsible steps to get out of the positions weakened by rising interest rates. While the 1.8 billion figure is talked about a lot, less mentioned already, is that the bond portfolio they sold weighed $21 billion. The loss itself isn’t great, but far, far from catastrophic, just is not significant enough to justify even a fraction of this supposed frenzy of VC panic. Not really an A+ showing in that, importantly, part of their portfolio, but literally no cause here to run the fucking bank, literally nuking it out of orbit.

Please consider that Silicon Valley Bank had $209 billion in assets at the end of 2022; the $1.8 billion loss represented only .86% of their total assets. And the loss came from a known, widely understood market factor, that SVB was in fact, rebalancing for at the time all this went down.

To this point, there is no FUCKING WAY that venture capitalists could plausibly get spooked over a measly 1.8 billion that was responsive to known and understood changes in the interest rate. To be clear, venture capitalists deeply understand the Silicon Valley Bank financial model and its investments. This is very basic due diligence. There were no “surprises” here. 

First lines of the New York Times Dealbook analysis today? 

“The failure of Silicon Valley Bank was caused by a run on the bank. The company was not, at least until clients started rushing for the exits, insolvent or even close to insolvent.” 

Specifically, Founder’s Fund (notably, believed to be the first) and a16z ordered their startups to take their money out…

Which knowingly and foreseeably caused panic and a run on the bank. 

Which knowingly and foreseeably caused the bank to crash.

That’s so weird!! 

Tech knows more than anything about boom bust cycles and about panic causing rapid changes in financial circumstances and behavior. That is because they cause them all the time. On purpose 

The CEO of Silicon Valley Bank seemed palpably confused about the direction the situation was headed as it nosedived. I believe he is probably befuddled that the VCs did NOT respond to his utterly reasonable request not to panic, especially as there was literally zero cause for panic. Venture capitalists and tech elite could have easily covered the 1.8 billion and BY THE WAY, they didn’t even give SVB the chance to raise that money! They ran the bank instead!!!! WEIRD. Even though SVB already had a half a billion in capital committed towards that goal !!! 

A few things to think about: 

This is a bank that exists because of startups and VCs. This was shared financial infrastructure for them and had been for a very long time. It was founded in 1983 which means today’s top venture capitalists like Marc Andreessen have literally been using this bank to various degrees for 20, 30 fucking years. VCs knew this bank like the back of their hands and their control of its future, as we’ve seen, has been absolute.  

The other important cited factor in Silicon Valley Bank’s downfall, is that startups have not been putting money in the bank like they had been in 2021, throughout last year and into this year. This is because despite having $300 billion in CASH on hand, and core indicators around massive technology efforts like crypto and AI and the metaverse coming up green, venture capitalists just sat and watch while startups flopped on the floor last year, starving the ecosystem. They have been doing this shit for a very long time to control the startup ecosystem. They starve it to create better market conditions.. for themselves. They knew what they were doing, they knew what the effects on the ecosystem would be. They absolutely knew that artificially depressing the startup market, would cause a squeeze on Silicon Valley Bank. This created the vulnerability that was then exploited by the run last week.

VCs knew this bank inside and out. If it failed… it was because they wanted it to. 

 I’ve discussed in several other pieces, like this one about how VCs are fixing the tech market, that despite mass hysteria in 2022 about crypto and the tech economy overall, the underlying financials and structures were very sound, VC picked up tons of startups for cheap, the technical progress was phenomenal, and VCs had a record amount of cash. Yet they pulled back funding. For no reason they purposefully starved the startup ecosystem. This whole time, and up to today, VCs are still sitting on $300 billion in cash, just waiting to deploy it during “more favorable” conditions (when they spend it, it will kick off the REAL web 3.0 bubble). Would those “more favorable” conditions happen to be artificially induced desperation in the startup community so that VCs can get more equity in startups for less? Would “more favorable conditions” be when they can essentially re-org the entire industry around new priorities (AI, Metaverse, crypto, weapons manufacturing?) And by the way, specifically, VCs starved out seed stage and early stage startups which would have cost a relatively small amount to keep funded; these are the types of startups that are SBV’s bread and butter. 

The “crunch” in startuplandia has all happened via venture capital control: mass layoffs, refusing to give startups needed capital, sitting on giant piles of cash while conditions worsen (except for their star startups, like Anduril, which raised $1.5 billion in just one round from Founder’s Fund and a16z last year), holding back acquisitions and IPOs, and purposefully depressing stock comp and wages. 

Now the bank is going under. And I cannot emphasize enough that venture capitalists knew a run on the bank would cause it to implode. And that’s what they did. They ORDERED their companies to run the bank even though there was not plausible justification. And the bank imploded. 

I’m sorry, but there’s just no fucking mystery here. The heads of every VC firm that ordered that run, should be fucking arrested because their next move is going to be even uglier. 

My operating theory is that the demolition of Silicon Valley Bank is about VC efforts to move the industry onto the new, blockchain/crypto based financial infrastructure they have invested so deeply in. The primary venture capitalist firm behind crypto (Coinbase, for one), a16z, has been very aggressive in insisting that crypto offers a more inflation-resistant, reliable, safer alternative to the traditional financial system. In fact, just days before the SVB collapse, they put out a high-quality, Super Bowl-style ad about how Coinbase is the future of financial infrastructure because the old banking system doesn’t work. So for one, this plays into their arguments perfectly. 

Silicon Valley Bank represents, as of the end of last year, a $200 billion market of startups, venture capitalists, the personal banking of founders and technologists and tech executives, the many wealthy residents of Silicon Valley. It also has a well-developed real estate, mortgage, loans practice. 

Why would venture capital want THAT MUCH of *their* money going into the traditional financial system, via SVB, when they have an entirely new financial system coming online? The first customers of technology are always in the industry itself. That is how we test and harden things and how we fuel our own ecosystem. When Ec2 came out, startups paved the way, leading to broad adoption; the same thing will happen with crypto and the effort to put legitimate assets on the infrastructure. Startups can carry a financial system to the whole world; why would they not themselves run on the industry fintech platforms, especially when what those platforms need most desperately, is legitimacy and transactions.

“Tech runs on crypto” makes a much better story than “tech runs on Goldman Sachs.” 

It is my belief that this was an orchestrated hit by venture capitalists — Founder’s Fund, who started the run, and a16z, who has the most to gain by the bank’s fall as the largest crypto/fintech investor — in order to replatform industry finances onto VC-controlled financial infrastructure - crypto in general but particularly a16z-owned platforms; they have the most robust and most advanced and most hardened “alt” financial infrastructure as of now. 

Getting the entire startup economy running on crypto/blockchain makes perfect sense. The tech industry has been running on the traditional financial infrastructure for a long time. That’s money that is pouring into traditional finance that could be pouring into the industry’s new fintech, crypto, blockchain infrastructure. There are other signs of tech’s increasingly financial insularity, such as the massive stock buy-back programs (I for one am convinced they are going to try to take Facebook private but that’s for another post). 

Elon Musk already announced he was “open to the idea” of Twitter buying it. Which I don’t necessarily take at face value, but its important to know that Musk, Thiel *and* Andreessen are all part of the same financial conspiracy — I wrote more about this conspiracy here. Their fingerprints are all over this. 

It’s hard to predict what happens next. I think that this would actually be an amazing acquisition target as it has now been shredded to next to nothing and yet theoretically is sitting in a really privileged and special financial position, which specifically, is being at the heart of tech production and innovation. However, the bank will be worthless if venture capitalists and startups (on VC orders) won’t use it and are siphoning as many startups onto a16z infrastructure as possible.

Some VCs have put out an open letter that if Silicon Valley Bank can be recovered, they will encourage their startups to come back to the bank. A16z and Founder’s Fund are notably absent from the signatories. Exclusive little devils!!

What I see what I look at the Silicon Valley Bank situation, what I see is an over $200 billion market opportunity (and that is only right now), just sitting there in the very heart of a venture capital system that is trying to propel new financial technology, independent from the existing American financial system, into serious, hardened adoption. If it can stack itself full of startups that are controlled by venture capitalists, you have just a ton of equity, transactions, payroll, real estate, leases, loans, etc. flowing through the system and vitalizing it and carrying it out to the world. That market opportunity exists whether it is retained via an acquisition or whether the bank itself is left gutted and dead. 

And I think we’ve seen a great demonstration here of VC’s ability to cause sudden and dramatic changes in financial infrastructure. 

Crypto will not be backed by nothing. It will be backed by tech companies. And a wholeeee bunch of them just got their walking papers from the establishment financial system.

Luckily, something new is waiting to take them in. 

VCs are trying to create an entire alternative financial system — and I very much believe that at some point, that includes its own stock market as well as VC funding, real estate for techies, loans, all of these things that it just detonated in Silicon Valley Bank. 

It is indisputable that VCs caused the run on the bank for no reason and the run is what killed the bank. In the coming weeks and months, I think we are looking at both the start of a new bubble AND the replatforming of the Valley onto Web 3.0 technology. Web 3.0 is NOT dead, stop listening to propaganda and lies and clout seekers. This is web 3.0 baby. Arriving with not a whimper but a howl.

This situation requires us to once again consider the reality that venture capitalists are operating on American soil as an aggressive and hostile force. They are extremely skilled at creating financial weapons and causing financial chaos. If half of their job is “building”… the other half is bleeding.

Can’t wait for Monday!!!