SVB's Collapse Ripples Through Silicon Valley

it collapsed. A top lender to vc BAT startups. SVB, the parent company, had quadrupled the size of Silicon Valley Bank in the past five years. Now it's the second bank Silicon Valley Bank is to fold in a week after Silvergate's bankruptcy. This story is bleeding into the banking sector, into the tech sector, into the financial markets at large, and has the attention of not only financial regulators, the

white housetop bench capitalists, tech founders of all backgrounds. Just tell us a little bit about how it's impacting individual

companies at this moment. Well. First off, the BAT trading of SVB Financial Group was suspended, halting petting news and never did trade had a really profound impact in equity markets, the KBW Bank Index down four percent, But actually other names, particularly regional lenders, where contagion risk and concern was building, we saw pretty deep declines First Republic and Signature Bank. Some of those names where we did see severe reaction

was of course in SVB Group's bonds. It's debts. So I'm looking at the twenty thirty three note in particular. We are deep into distressed territory, in this case trading forty five cents on the dollar caroline. But what we have is a situation where the FDIC has come in and has taken control of this bank, and the latest Bloomberg reporting is that they are trying to find a buyer to come in and take on these assets for

what is left. Shanali Bassak, who has been on air all day pushing this story forward as we brace ourselves for this weekend. Nowtionally, what do we anticipate to be coming from regulators? What do we anticipate in terms of who could be some sort of salvation right now? Yeah, I think it's very important to think about the process here moving forward for Silicon Valley Bank because there's a few things. One on the regulatory perspective now that it

is in receivership. Remember, the FDIC retains all these assets now, and if you think about what happens in the event of a sale, they can move through a sale process or they could sell certain assets. That's one thing to think about. Remember there's also this issue here for customers, because if you have above and beyond two hundred and fifty thousand dollars, you need to be calling the FDIC at this point because that is the amount the FDIC

insures per account. Right then, separately, you also have this other issue here of what happens to the clients that Silicon Valley Bank has lent to those venture backed loans. Are they callable in any fashion? Is there any worries about the clients that do exist for Silicon Valley Bank. Of course, are many venture capitalists that are very worried about the companies being able to make payroll. The point here is that this was a technical failure by FDIC standards.

You know, silvi Gate also a part of this discussion and voluntarily wound down. But you're exactly right. You and I have been tracking for twenty four hours what so many startup founders are doing as well with their own cash moving it to other banks. We've reported some of that movement. What do we know about what clients are doing to manage this situation, Shinali with their funds. Yeah,

we know. For example, remember because some of these assets are not necessarily ensured, so those are the assets that were very worried about. The customer base. Four. But remember we've been talking about this ed People act like this is something that happened in twenty four hours. There's a lot that did happen in twenty four hours. But as you know very well, the reason this happened in the first place is because customers slowly started to move deposits.

We want to keep an eye on which firms still had deposits with Silicon Valley Bank up to this point, but there was a slow, steady movement and they had to sell assets at a loss to meet those deposits. Lastly, I would just say, for a matter of definition, this is one of the largest bank failures in US history in the sense that it is the second largest bank holding company failure since Washington Mutual Lehman Brothers was not necessarily a bank holding company. There are sales involved at

the two hundred two thousand and eight crisis era. So this failure is a very technical one, as you're saying, and it is pretty unique in nature, and it is a very different time than two thousand and eight, so quite contained right as people see into the market, and so much of this is about psychology. That's what we keep hearing in the market, psychology of what was contributing to the run bloom Nocenali Bassek. We'll have you back

later on in the show. I want to bring in Argent Seti, co founder of Tribe Capital or VC with about one point seven billion dollars of assets. Sethi says venture capitalists should prioritize founders and their employees as well as payroll and banking partners. Welcome to the program. You and I have been talking on and off for twenty four hours or so. Where do you stand as a venture catalyst who's p folio companies use Silicon Valley Bank? Yeah,

I think what's in Thanks for having me. I think what's important about understanding the people that are going to be the most affected here are early in mid stage companies more so than late stage companies. By the time you get to a certain stage of revenue and in balance sheet, you start thinking about diversifying your risk and the types of partners that you have around the table, so Bargain, Stanley, JP, Morgan City Bank, Exsider, the whole

list of the larger banks. I think the thing that's really important that people have been forgetting is that our job in our ecosystem, so as an investor, as a fiduciary of capital, as a fiduciary sitting on the boards of these companies, is to make sure that we're giving them the best advice and we will make sure that we can help them think about what they need to do, and for a large set of us, not just me.

You know, we started giving this advice a couple of weeks ago, probably more so when we got louder over the last week and then obviously over the last between of twenty four to forty eight hours. But it's really just about diversifying your risk. Where you're cash is sitting and then how you're sweeping that cash. Is it in treasuries depending on how much deposits you have in the

first place. The second piece I think a lot of people forget is that a lot of these companies do rely on banks UM and you know, Silicon Valley Bank was a pillar of the community that helped support a lot of the UM you know, underwriting the risk of the assets in order to get them ventured debt. You know, they worked with a lot of venture funds, but you know, they were a lender. They were also a lender for capital call lines of credit for funds. Funds bank with them,

not just our management companies, but the funds themselves. So this actually reverberates pretty you know, pretty quickly in the ecosystem around what what it's going to look like for not just the companies, but they're backers. Does ULL fund back for them? We do not bank with SBB. We bank with a larger a larger set of providers that are out there. And then our capital call lines of credit are with different service providers. A knowledge just again,

let's start with the issues for the portfolio companies. If they want to make payroll, for example, you're giving them advice. At what point do you and ow the VC backs need to give lines of credit, give money without the strings attached to those founders those companies if they can't access it from their own banks at the moment. Yeah, it's a good question. I mean, I think, you know, there's some venture capitalists that might not be in the

capable they might not have the capability to fund. It's not as easy as just you know, sending the check. I saw some tweets from some angel investors. In my opinion, they're sort of ill educated on the process. You can't just wire money to help the company, right, There's a process that you go through. You have to your fiducure and understanding the risk of where the company is and and if you know if the company itself is underwriteable in the first place. So again, early stage, in mid stage,

this is more of an issue. Late stage it's less of an issue. But for some of these companies that don't have the ability to access payroll, you know. I think a lot of what we're trying to do is who can we set them up with that has the capability to underwrite them. What can we do in the short term, Do we do bridge loans? Do we write

more investment into the company through equity. I think one of the issues is that you know, you're going to have a lot of predatory folks out there going after some of these companies if they can meet some of these liabilities, and an article again as fiduciaries, is to make sure that doesn't happen. What's interesting, of course, Ed, is you've been writing throughout the day. Who then, we haven't hate to say the silver cloud silver linings in

these clouds, but who benefits? Where does the money flow ultimately from portfolio companies that are trying to diversify at this moment, and indeed the vcs too, well, there are many VNCH catalysts that believe actually staying put was the

right move. But the name that I kept hearing time and time again was JP Morgan, you know, that was getting a lot of phone calls, but also some lesser known banks Mercury as an example, some vcs saying get a bit of your capital and bigger banks, but go with some of the startups too because of the benefits

they're offering. What was really interesting as well is this is kind of laying bare the situation right now for being a startup, being a founder, right Argent, you've been writing about the desert that we are traveling through in the world of VC and startops. There is a deficit of available capital. And my question to you is how much worse is that now given the events of the past twenty four hours. Yeah, So there's two pieces here.

Over the last five years. I think the way to think about it is the FED the first printed trillions of dollars, then they denied anything was happening, Then they said it was transitory. Then you know, we put their rates to them. And so what happens is there's a lot of trickle effects that come from this. So the first is that a lot of venture capital went into a lot of these companies, may they be good or bad. So roughly about a trillion and a half over the

last four to five years those companies. In order for them to meet their demands or growth concerns, they probably need another three to four trillion of capital. Where is that going to come from? That? This was before SVB, and so that becomes an issue. Now all of a sudden you have SEB. People generally get scared. You know, it may not be logical, and there might be capital around the table, but just get scared and their deer in the headlights. So I think what you're going to

see is flight to safety. What are the assets that you go after? How do you continue to bankroll them. How do you do a concentration of your time am capital into these companies in which ones are going to be resilient and so you know, I think this probably takes about three to six months to go through the system. I do think it gets worse over the next twelve to sixteen months, just because a lot more companies will

need access to that capital. And I think the one thing that people really forget here is that these companies need this capital and rocro or in order to hit their certain thresholds of their unit economics because most of them still haven't been able to shed enough. People still haven't been able to get into a place that's healthy, and you know, the capital needs are going to become greater and greater over the next year. Ultimately many are

loss making. Tribe Capital cofounder Argent Sethi, thank you so much for providing information across social media channels, but for coming on this show too. We appreciate it zero. Our recent developments the concern a few banks that I'm monitoring very carefully, and when banks experience financial losses, it is and should be a murder of concern US Treasury Secretary

Janny Ellen. They're saying she was monitoring the situation, also said that the US banking system remains resilient to the regulators have quote effective tools to address the fallout from the collapse of Silicon Valley Bank. She's called a meeting, of course, with the leaders of the Federal Reserve, the FDIC, the officer of the Control of the currency, to discuss developments around SVB. Before we get to those overall regulatory discussions, and I want to bring you some breaking news because

this has huge overarching implications for publicly traded companies. Roku currently saying that twenty six percent I reiterate a quarter of Roku's total cash and cash equivalents are held with SBB. The company's deposits are with SVB a largely unensured and they don't know what extent it can recover those cash

deposit deposits. So currently Roku, of course, the makeup of the way in which you consume perhaps what you're watching at this very moment, twenty six percent of its total cash and cash equivalents are held with SVB, and ed existing cash flow is enough for the next twelve months and beyond. Of course, this is a later stage company in public company and one that we keep a close eye on currently falling six percent after ours ed. Yeah, it's it's a question we're asking, right forget not just

private startups the founders. There are a number, okay they're smaller cap companies, but public companies that use Silicon Valley Bank because until earlier today it was a critical bank for the world of technology and companies founded over this nation and beyond. And this is why we then worry a lot about the startups who don't have twelve months and beyond of existing cash flow. Let's talk about the ripple effects and where next the regulators are going to

be watching. Of course, most Kylee Lines has been doing incredible work, having newly moved to Washington, and now our regulatory overseer really just talk to us, Kayley, about what we loot full next. Coming from the likes of the FDIC and indeed John Allen herself well for the FDICE, this really goes back to Roku in the question of uninsured deposits, because remember, this is the first failure of an insured institution we've seen this year, one of the

largest we have seen in history. But that insurance only goes so far. That cap is two hundred and fifty thousand dollars, and from our understanding, more than ninety percent of the deposits Dot Silicon Valley Bank were uninsured. So that is really going to be question number one what happens with those uninsured deposits. Are those depositors going to

be made whole? That is going to be one of the priorities that we are following on, especially as you guys were just alluding to for those early sage companies that may be short on cash at this point, then it becomes a question of any kind of ripple effects. Are we going to see other episodes of this or was this an isolated incidents. Journalie and I were speaking with a former official from the FDIC's earlier who said, I, look, regulators are really hoping that this is just an isolated

that they can contain. And I would note that Jenny Ellen, as well as the broader White House, including the Council of Economic Advisors Director Cecilia Rouse, did express confidence in what regulators are doing here, and Rouse was quick to point out that this is not two thousand and eight.

We are post two thousand and eight. We are a postad Frank, there are now capital and liquidity requirements stressed at better in place, and really the banking system and theory is much more resilient now than it was then. Bloomer's Kayley lines out in DC, thank you. The regulatory conversation is not going to stop here, and we will continue it with our in Kleine, economic senior fellow at the Brookings Institution. You've been working on financial regulatory reform

issues for a very long time. The Department of the Treasury and Economic Advisor to the Senate Banking Housy Housing an Urban Affairs Committee. No. Yellen saying she has full confidence in the banking regulators. The FDIC has come in taken control at Silicon Valley Bank and will oversee the sale process. Do you have that confidence based on your experience in this area. I do. Look, the FDIC has

done a great job in handling and resolving institutions. Actually generally speaking, they're able to do so at a small cost of taxpayers and tend to recover a lot for uninsured depositors. But each bank failure is a little bit different.

Keep in mind, this bank was overseen at the federal level by the Federal Reserve, the Federal Reserve Bank of San Francisco was Silicon Valley banks number one federal regulator, and so the San Francisco FED should have been on top of what was going on the bank's explosive growth. And now it's very quick failure. But there are a lot of tools the FDIC has to handle this resolution situation, and I do think there's confidence. So there's a large bank,

sixteenth largest bank in the country. Yeah, but it's not your typical bank. It only has sixteen branches. It's a very different structured bank than most of its peers around that same size. Are just bringing the breaking news. It continues to unfold. We currently understand the SVB Financial Group, perhaps on surprise in newscoping room from the SMP five hundred as an index insulates the company that will replace it.

But just talk us through what got us here ultimately, and whether the regulations that you have been so crucial informing in many ways and analyzing the repercussions thereof whether they're the right regulations, the right ways in which banks currently hold capital, but in some ways can lead to extraordinary circumstances that we find with SVB. Right, So let's start with the premise my premises banks should fail. We have nearly five thousand banks in America, and a healthy

amount of failure is greater than zero. I was more concerned the last two years when not a single bank failed. By the way, the first time in American history we went a year without a bank failure was two thousand and five. Regulators told us the banking system was in great shape, and not a single bank failed again in oh six oops. So a little bit of failure is actually a desirable thing, not something to be afraid up. The question is when anitution fails, is that failure contained,

who bears the losses of it? And how quickly can this situation be resolved? And in that situation, I think the regulatory tools the FDIC and the Federal Reserve and other regulators have now or light years ahead of what they had in two thousand and seven and eight, when the cause of the crisis was very different. Aaron, A lot of people out there have a lot of questions, principally startup founders who were banking with Silicon Valley Bank.

When the FDIC comes into an institution in this situation, what is their priority? You look at the chart on the screen, you can't even see it on the right hand side, because this is the first technical FDIC failure in a very very long time, in the first of this year so well. Silvergate Bank is another bank that failed very recently, if you want to call it a technical failure, not Sometimes the FDS is able to negotiate purchase an assumption here where other banks take the assets

of the other bank. The FDS is number one priority, or the retail customers and the insured depositors who are going to be able to have access to their money, almost like nothing happened. There's just a bit of a rebranding. That's their number one priority. Uninsured depositors, businesses their number two priorities to try to maximize the ongoing value of the institution, to minimize the loss felt by everybody, including

uninsured depositors. But I want to point something out here, and I hope we get a chance to discuss it, which is the FDIC isn't the first person to have a claimant. So if you think about who owns to who has a claim on this bank's assets, the FDSC is number two. Number one. Is this kind of arcane part of the government called the Federal Homelan bank system and the Federal Homelan Bank of San Francisco had lent more money to Silicon Valley Bank than to any other

bank they did business with at its time of its failure. Okay, so Digg in the fall, you've done analysis and what other companies, what other lenders have perhaps exposure to the homelowans element of things? Are we likely to see? What's a contagion risk here? What's ultimately going to be the likelihood of also the uninsured companies, the likes of Roku that comes out says twenty six percent whose cash balances are over in Silicon Valley Bank and ultimately aren't ensured.

What are the ripple effects here? So there are a couple of things. Number one, the people that run to the homeland bank system that are heavy users of it, particularly that come very very quick. A year ago, Silicon Valley Bank didn't even appear on the top list of borrowers from the Federal Homelone Bank of San Francisco, and you know, within a year they'd vaulted to number one

twenty billion dollars of outstanding advances. Silvergate, at the time of its failure had over four billion dollars of outstanding advances to you look at the list of other people that have started leaning very heavily on the homeline bank system, and you ask the question, why why are they going there,

particularly a bank like Silver Bank, which isn't really making mortgages. Right, The purpose of the homelan bank system originally, when you go back one hundred years, it was supposed to be a federal reserve kind of for these things called thrifts. They used to make mortgages when America had a very different banking system and a bank and a were different things. So I kind of look there, that's a classic red flag.

If you go back to two thousand and seven Countrywide Washington Mutual, all those folks were the ones that were running to the homeland bank system and oh seven long after the market had started to dry up on the

asset that they were over invested in. Yeah, Brookings Institution, Aaron Kleine, We thank you so much for the intricacies around regulation there, and we want to go back to the companies that currently exposed to Silicon Valley Bank that are going to be worrying about well whether the deposits, whether their money at the lender is going to be ensured. Roadblocks coming out saying the SVB situation won't affect his operations, but roadblocks of course. The gaming company says five percent

of its balance is held at SVP. Roku has already come out and said twenty six percent overall of its cash has been held over at SVB. Existing cash flow, though, is enough for the next twelve months and beyond, they say, and they don't know what extent it can recover those SVB cash deposits. One last headline for you. Rocket Lab has deposit accounts with SBB, totaling of ballets of thirty eight million. It's about seven point nine percent of cash

and equivalents with SVB. We have so much more going on after the break. This is bloom Bag. I'm Creana of the startups and venture capital team. I'm outside Silicon Valley Banks office in San Francisco. They're in the NASTAP building. All morning, there's been a slow trickle of customers coming in, only one every fifteen twenty minutes or so, and they're being redirected to the banks Powell Alto office on Sandhill Road. Are being told that if they want any information, that's

where they have to go. It's unclear whether anyone is even in this office right now in San Francisco. Welcome back to a special edition of Bloomberg Technology. I'm Ed Ludlow in San Francisco and Caroline Hyde in New York on the ground reporting there. Let's get back to what happened in the days markets trade, in the week the markets trade because remember this did seem to evolve all at once over the last twenty four hours, but it has had a damaging effect on the NASDAC on risk

sentiment in general. The overall collapse of Silicon Valley Bank, which swiftly followed a called Silva Gate earlier in the week, the nazacs off by four point seven percent. This is also largely to do with the Federal Reserve, with the increase and interest rates at many braceful that's ultimately behind the collapse of these lenders. We're seeing crypto on the downside more than nine percent, having its worst weeks. It's

in mid November. We're looking at the flight to safety yields crescendoing lower, the US tenure yield off by a quarter of a percentage point. Move it on. Look at what's happened across the assets. Ed. We're looking at the bond market that really exemplified some of the risks inside what happened with Silicon Valley Bank. How swiftly the overall bond prices fell Silicon Valley Bank SVB, the parent company, forty three percent as where they're training out, so just

forty three cents on the dollar fory or bonds. We're seeing also though, some marked discounts where other key lenders, like in the space in purple, of course, you can see the likes of some other of those smaller lenders, Western Alliance as their first republic is there in the teal color ed. The next question is what happened to the future of those assets held by the bank, What happens to the bank, and what happens to the companies that were banking with and not just the private ones.

We're getting loads of headlines about the public companies. They're exposures to svbing, what they've done to mitigate it. Joining us now, Bloombergs Max rays Max give us the latest headlines and news out of Silicon Valley Bank. Sure, well, exactly like you're saying, we are seeing public companies come out in regulatory filings this afternoon, telling us essentially how much exposure they have, how much money is lacked up at the bank, and just to kind of make sure

we're on the same page. When you see a bank run like this, the concern is that if you have deposits that are not ensured, if the bank fails, you won't have access to those funds and it becomes a question of whether or not you're ever reimbursed. Right, and particularly with a commercial bank that is so focused on one sector, if everyone panics at once and you see this draw down that's kind of motivated by talk on Twitter, by talk from vcs telling their portfolio companies to get out,

you see the sort of situation, right. It's almost, you know, a classic prisoner's dilemma where if everyone works together, we won't see this happen, but if even one person breaks, you have the situation where folks are really in dire straits with money locked up in this bank and no clear way of getting at it. Ultimately, Max talk to us about the contagion effect. We're just seeing the bond

prices of some other lenders there. How much all people now focusing in on other regional lenders are the key constituents that maybe some them all focused on the tech sector too. Yeah, I want to be very careful with how I talk about this, just because SIVB is a very unique animal when it comes to banking. There's not really a bank with such a singular focus. Silvergate was the same way but for crypto, where it had this very very myopic focus on this one industry which made

it very susceptible to a moment like this. But yeah, there is definitely concerns around contagion. People are afraid that

this could happen elsewhere. And the key thing driving it, like you guys have been saying all day, his interest rates the fact that the banks, their asset side of the balance sheet has been underwater for a while at this point, just because they bought these bonds for you know, less than their worth currently, which means that if they do have to sell them, they are going to realize losses. And that's what we've been seeing here and that's been

driving this. I think it's fair to call it a crisis at this point, you know, at least among a few banking institutions in California, and I think everyone is trying to sort out what comes next, But I don't want to prognosticate Max. I have a feeling you have a busy weekend. Well, thank you so much. Max. Ways, he's been just so thorough on this story, and there have been ripple effects far and wide. Let's dig in too, of course, the impact on startups on the venture community,

in particular Jenny Fielding. She's well known in seed investing. She's managing partner and co founder at the Fund. It's a VC firm focusing in early stage tech startups. You have not only are an abject professor at Columbia and teaching at Cornell Tech, but you're also very prolific when it was work with tech stars. Jenny, what have you been advising your portfolio companies in this day alone? I mean, it's been incredible chaos, So my phone has been blowing up.

We have two hundred and fifty portfolio companies and I'd say about thirty percent are involved with SVB. So the first thing we said to them yesterday is we need to stay calm and we need to all get collectively on the same page of what's happening. So in our case, we have two hundred and fifty portfolio companies. We have another five hundred LPs that are also founders. So all of these people we have in our community and they're

really suffering. So in terms of advice, we tend to take an approach of let's share information and founders need to make their own decisions. Ultimately, do you have a relationship Basilicon Valley Bank as well at the fund and what have you decided to do in terms of your own working capital and money that you have with them? We do, So I've had a long standing relationship with SPOB.

They've been incredible supporters of the startup ecosystem and you know, quite frankly of the emerging managers like us as well. So they've been absolutely critical. We do have banking relationship with them, and we do keep assets with them, and so it's been a very hard moment. You know, we're trying to help our startups, we're also trying to help ourselves,

so just that contrast has been quite hard, Jenny. What I keep hearing from conversations event capitalists and founders is, honestly, there's a real concern here not just about the operational cash needs of startups, but their mental health as well. And I just wondered if you'd reflect on some of the conversations you've had with portfolio founders today and how difficult it's been for them as leaders, as business operators. I canceled pretty much all of my meetings today just

to field calls from founders. This is a very unsettling time. I mean, this is a very hard time in tech, you know, just in general, right, you know, the markets have created a lot of pressure on these companies. Raising capital is not how it was, you know, last year, and so compounding what's happening today, a lot of our companies are really suffering. So we try to be a sounding board. We try to listen, we try to provide resources,

but ultimately it's it's just a traumatic time. There was a proposed idea from Sam Altman that actually what founders in startups need right now is cash. Just give cash if you can. Does that make sense to you? Is it sort of stop gap for what's happening out there in terms of making payroll and working capital? It really does. I mean venture capitalists like to run around saying they provide value. Well, this is the time to provide value

to your portfolio companies. You need to listen to them, and you need to be able to support them, and many vcs are able to do that or provide resources. Right, there are other opportunities for people to kind of come in. But yeah, if you have payroll and you've been tied up in Silicon Valley Bank and that money, you know, maybe two hundred and fifty thousand is available on Monday. If you have fifty employees right making one hundred and fifty thousand, you're you're in a you know, a deficit

of about one hundred thousand dollars just this Monday. So everyone is quite nervous, and I think it is a time to chip in and support our founders to that point.

Parker Conrad of Rippling, which is in many ways a company that helps a payroll and they themselves discovered yesterday, of course the Silicon Valley issued and the fact that they have their own exposure and they notified some customers that look, some payroll processing is going to be stalled because of SBB, even though they did actually switch their banking to JP. Morgan in large part talk to us about does this have a cascade effect, Like what do

people do about not being able to make payroll? Do they have to let people go. I mean, it's a really interesting question. I think that the most important thing is there's open communication. Right, we saw in the waves of layoffs when they're isn't good communication with your employees, That's when things really go awry. So have communication. Our founders are speaking to their employees all the time, you know today, of what's going on and really warning them.

And I think that's a great sign of leadership, just being proactive. But yes, there is a real worried that payroll will not be made on Monday. Jenny Argin from Tribe Capital was on the show earlier. He makes the point that there was already a funding deficit prior to the events of the last twenty four hours. He expects a number of startups to fail, but not as many as you might think. What is your outlook to the

health particularly at the early stage. So interestingly, like the early stage has been somewhat shielded from some of the stuff that's going on. So if you were a startup in the series B, Series C, it's been you know, quite dire, but early stage has been okay. So our trajectory, we're long term investors. We invest at the first round of capital. You know, we want to hold our positions for ten years, so you know we have a better

outlook long term. I think short term we need to support our founders, and we are worried about the short term. Jenny Fielding, managing partner and co founder at the fund, helping us cover this story in the short term, that we will continue the conversation in the long term. I think the right thing, the prudent thing we've learned is

counterparty risk. Once these things start. This is a classic bank run, and when the blank run starts, you don't want to be the last guy there and wondering what happened. A Labs John wu reaction to the SVB news in real time on last night's show, and let's just discuss the implications on the crypto space but also well startup space, writ large. Dave Weisberger is with us. He's CEO and co founder of coin Roots. It's a crypto spot and

derivatives trading platform. But also, Dave, you're an expert in troud fires. Many will call it traditional finance market structure. You built electronics trading systems and platforms across names like Morgan Stanley, Solomon brothers, and they're like, just tell us at the moment whether this is systemic issue across banking

and also what it means for crypto companies such as yourself. Well, it's fascinating actually, because if you think about the core of crypto and what bitcoin is about, it's really about the opposite of fractional reserve banking. It really is about distributed not having to take counterparty risk. I won't take credit for it. Mark Yusco from Morten Creek basically does

a great job. His point is crypto is truth technology to replace the need for centralized trust, and so long term events like this are massively bullish for the crypto complex. Now many of the assets in crypto will actually be hurt by this, Bitcoin I think will be helped, and we'll see how it goes. As far as is this systemic or not, that's a different question. Well, you were tweeting earlier, Dave. I'm going to bring one of your

tweets up on the screen. But your basic argument is that the contagion risk, the risk from the banking system is actually much more potentially damaging to crypto and tech than it is to banks. From crypto, explain your logic here, What do you mean in this tweet? What are you trying to say? Well, I mean, at the end of the day, every time there's been an incident in crypto, it hasn't spilled back over to the mainstream until FTX.

Now FTX is separate from all the other failures. Right, So we had three systemic We had three huge failures in twenty twenty two in the world of crypto. All were preventable with principles based regulation that we should have, should have had and should actually build but don't have. Right. The first was lots of money in a stable coin

that wasn't stable. I had zero dollars in Luna, zero dollars in ust thought that basically the whole notion of an algorithmic stable coin to me, sounds like a Ponzi scheme. It's recursive, to use a quantitative term, And ever since Basis came out with their first white paper, despite the pedigree academic pedigree of the authors, I thought it was a terrible idea. I still think it's a terrible idea

and I probably will whatever. So that was that one, and regulations that say stable coins have to be fully backed makes that not be a problem. The second, which was far worse, was from bad disclosures. And there's probably the only point that I know of that Gary Genser and I agree on completely, which is firms should have to disclose their risks. Right. The third one, which was FTX, was far more like made off than like anything else.

They simply gambled away somewhere between eight and ten billion dollars and stole it from their customers. That an nothing with crypto. They could just easily been doing sports betting, doesn't matter. They lost a lot of money and stole it. That's not a systemic risk from crypto. That's a massive theft. So if you actually look at everything else, all the other major volatile events in the history of bitcoin and crypto has never really spilled over to the traditional financial

system because there really isn't a impact there. But so Dave, twenty four hours ago, Okay, Caroline and I were having this discussion that actually this is all the net result of higher rates, and what higher rates have done, Caroline, right, is cut froth out of the market. Where is the most froth. Well, according to Bloomberg reporting, it was in the cryptisector. Yeah, and ultimately that was what the demise

behind still the gate because people had to pull their deposits. Then, of course the tech community needing to pull their deposits to basically get through the cash burn and Dave, now you were just mentioning stable coins. I'm interested as to what happens if some of the key stable coin proponents, some of the companies behind it have relationships for the Silicon Valley Bank. That is a great question, and I wish I knew the answer. I basically I don't know

Jeremy Lair from Circle. We perfectly blond about it. We've never met. But if I were running Circle, I would have had ninety eight percent of my deposits in T bills and T notes. There's no reason to take to have bank investments. You need banking for liquidity on the margin, so it should be a very small amount. Now why do I say that, It's because I'll tell you. At coin routes, for example, we were offered bank savings accounts and we compared that to three months and even thirty

day tea bills for our cash needs. And the reality is you get multiple percent higher by investing in government debt, which is obviously far safer than you do in banks. So the real issue is if you look at bank rate dot com, they'll tell you the average savings account rate is point two five or point two three percent. So one has to ask oneself the question, why are people leaving money in bank deposits. That's a really, really

interesting question. I don't know the answer to that. I can tell you at coin Routes, our treasury for our three years plus of runway is setting either very large banks or in treasuries just on the issue of such or we will go to them and get comment and best side of this story. I don't see yet any commentary from them on the Bloomberg terminal today either way. Corn Route CEO and co founder diet Dave Weisberger, thank

you very much. Now up next the implications on Silicon Valley itself, the place, but also the tech sector as a whole. Let's talk about all of that, not just that view on your screen, but also the miles and miles of companies, founders, bench capitalists behind it in the distance. We'll bring all of you that. Next. This is Bloomberg. Let's talk about how the Silicon Valley bank melt down

as impacted Silicon Valley believe it or not. You know, we've not really talked about out West and all of the companies here that are suffering as a consequence of what's happened. I'm going to bring in Bloomberg Shnai Bassett, who's been across the finance banking side of this all day long, and also Bloomberg is exative editor Tom Giles, who's been leading our coverage from the tech perspective. Tom,

I'll start with you. I mean, what we're learning increasingly and rapidly is it's not just private companies, start ups and founders with exposure here. They are publicly traded technology companies with exposure to this company. This bank had its tentacles across so many different industries, across so many different types of businesses. It wasn't just startups as you said, These are publicly traded companies that kept a lot of

their cash with SBB. And clearly, when you have twenty six percent of your cash that's the case with Roku, that goes well above what's ensured. And so this is a company that's falling and late trading. They disposed in a regulatory filing their shared are down six percent, twenty six percent of their total cash was held with Silicon Valley Bank. Rocket Laps is another one. Now we're also seeing a lot of companies coming out and saying we

have no exposure or we have very minimal exposure. I think that's something that these companies need to share with their share holders who are concerned about exposure to a bank that's just gone into receivers five hundred million thereabouts. SVB has with roku of it's almost two billion dollars in cash and cash equivalent. Shinali, what next push us

forward for what we hear from. Not only we wait for the publicly traded companies and private ones to disclose their exposure, but the FDIC in this process and indeed the regulators. We've got a weekend to work this out. We have a weekend in essence. Remember there's a question here of whether they'll look to seek a buyer and fuller a buyer for some of the assets. Remember Silicon Valley Bank, there's been a lot of complications for any

potential buyer that's coming in. They would have wanted to buy, the relationships they would have wanted to buy in all of the think about how big some of these businesses have gone investment banking, they had a large wealth client base as well. These are attractive to a lot of Wall Street. But with all of that said, you know, what are the troubles that's still exists for the client base. I think that is the first and most immediate concern.

No matter what, and especially if they do find buyers, what happens to those asset bases in that event, especially if not all of it is sold to some parts get left behind. Tom on the technology side of this story, where does this rank in all of the crises and mega tech stories that we've covered in this newsroom over

the years. I mean, this really is up there. This is stuff that that speaks to a very visceral, fundamental fear that you have as a person, as a company, as a business, and that is essentially where I'm putting my assets you think that they're safe. This hints at the fundamental fear for any business, which is my savings are not safe. They're not They're not well be expected. These You know, putting your money in a bank is not supposed to be the speculative game. This isn't investing

in crypto, This isn't investing in securities. It's not even investing in bonds. This is just keeping it in liquid cash money market securities. So this really cuts at the heart of the trust relationship that exists between a business. Yes, and ultimately Tom and Shinali, this is why the White House wigs in, why the Treasury Secretary weighs in, why we all await what indeed the rest of the regulators is going to say it over the course of the weekend,

Shinali Bassak, You're going to be busy. I think Tom Giles too. We thank you both so much for your time, and that doesn't for this addition of bloom Bow technology. But ed, we've got some big moves to make. On Monday, we're back, but we are relaunching. We're new newn easton nine am Pacific with the new showtime Carrot where we are going big and this as we go to break with one of the biggest stories, at least in my career, in your career. This is Bloomberg