SVB's Failure - Historical Perspective for Founders & Investors

<p>What founders and investors in startups need to know about the history of bankruns and how to protect themselves from them in the future.</p> <p>Here's the text on which my talk was based:</p> <p class="MsoNormal" style="text-align: center;" align="center"> <span style="font-size: 14.0pt;">Historical Perspective on SVB’s Failure for Investors & Founders</span><span style= "font-size: 14.0pt;"> </span></p> <p class="MsoNormal"><span style="font-size: 14.0pt;">This is Sal Daher of the Angel Invest Boston podcast. Prior to becoming an investor in tech startups, I spent decades as a banker and trader involved with the distressed debt of countries. My experience came in handy recently in allowing me to reassure the startups in my portfolio with deposits at SVB that the FDIC would have no option but to make all depositors whole. </span></p> <p class="MsoNormal"><span style="font-size: 14.0pt;">This piece aims to explain why the business model of banks and past government decisions precluded any other options. It also points to ways that founders can manage deposit risk. While it bothers me to see well-off people bailed out by the taxpayer, it is the necessary if imperfect course of action until we make structural changes to hold bank management more accountable.</span></p> <p class="MsoNormal"><span style="font-size: 14.0pt;">Why was I so certain in my assurances? Because financial authorities in the US and other countries had learned a hard lesson back when Lehman Brothers (not a deposit-taking bank) was allowed to fail in September of 2008. Lehman’s bankruptcy set off an inevitable chain of events that led to the meltdown of the market for credit risk insurance. <span style="mso-spacerun: yes;"> </span>This revealed pervasive rot in financial instruments widely held by institutions starved for yields. Thus began the Sub-Prime Crisis that ruined millions and blighted the career of so many of my colleagues in finance for nearly a decade. </span></p> <p class="MsoNormal"><span style="font-size: 14.0pt;">The hard less