Hey all! Imagine some episode of Billions where Axe makes a move on an opportunity and ends up doing a lot of money while killing a few companies in the process. Well, that's basically what happened here, only that this is real life.

By now you must know that one of the most important banks for tech companies, which is also the 16th biggest bank in the US, is now gone.

Silicon Valley Bank (SVB) was founded in 1983 with a special focus on founding tech and health startups with such success that made it the 16th largest commercial bank in the US. So you might be thinking, how the f*** one of the biggest banks in the world shuts down in less than a week?

We’ll cover the most important aspects of this crash here so you are well-informed and can maintain a fancy conversation at dinner with your C-level friends.

What the heck happened?

As you may know, the US is for the first time in 40 years really fighting against inflation. Since the pandemic, the inflation rate in the US has risen to over 9% in the last year, bringing several consequences.

1. In order to slow down inflation, the US Federal Reserve has been rising interest rates, stealing tech investors' money who might be more risk-averse at these times.

2. As with any bank, most of their capital is never liquid so they had a lot of it working over bonds that were paying a negative yield compared to the current treasury interest rate. Because of the decrease in investments in the tech world, SVB had to go out and sell their bonds losing about 1.8 billion dollars, generating the need to rise capital over stock sales to cover that loss.

3. Investors were faster here, and the SVB stock fell 60% when the market opened. That happened mainly because it was expected that customers panic and withdraw their money from the bank, pushing it to rise even more capital.

4. The capital raise failed. They even desperately attempted a company sale but it didn’t work.

5. On Friday the 10th the bank was shut down by the FDIC and put under their custody because of insolvency.

Affected companies

Well, by law all deposits are covered by up to $250,000. Although that might seem like a lot to you and me, that’s pocket change compared to the size of deposits some companies had in that bank. So you can imagine the discomfort some people went through over that weekend.

Imagine this, one day everything is great for you and your company. You may have thousands of employees and a few million in the bank to pay them for the following years. The day after, all that money is gone, but you still have salaries to pay.

These are the most known companies that had a hard weekend:

• Roku: TV entertainment system — $487 million in deposits

• Circle: USDC company — $3 billion in deposits

• Roblox: Online gaming platform — $150 million in deposits

• Etsy: Online marketplace — Millions of delays on transactions going through SVB

And many others like BlockFi, Compass Coffee, Camp, Axsome Therapeutics, Rippling, and Pharming group.

What's next?

So based on the recent trend and the numbers you saw above, 1 + 1 can only mean, in universal terms: more layoffs. And that’s not even counting on the specific implications of this for each company.

Don’t forget that Circle could have lost 3 billion. That means that USDC could have lost its parity to the US dollar, at least for some time.

However, none of that’s going to happen (at least not because of this). The FED ended up covering for the SVB's insolvency and allowed all the bank customers to withdraw their money in full, so no direct consequences should occur.

However, this is not like anything had happened.

Personal thoughts

With the pandemic, we saw the markets stumble, and especially tech companies got a big hit from this.

Then, since the beginning of the year, we started seeing how the biggest and strongest companies in the tech world started laying off their employees showing us that they were not as strong as we thought. (And these actually keep going.)

It’s known that investors are being more conservative and there’s no cash flow as there was a few years ago in this sector. And now, the biggest tech bank is down.

There has been a time where tech companies were only going up, but now unfortunately that bubble is starting to burst.

I think that we are passing through a moment of re-accommodation, where a lot of tech companies are going to disappear and only the ones that produce real value and are able to generate revenue for themselves will survive.

The signs are there, and let’s all remember that in times like this, really good opportunities appear. Pay attention to the signs and stay focused on what's coming.

Cheers!

Sources: The Guardian, The Verge, TechCrunch, The Washington Post, The New York Times & The Wall Street Journal