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Speaker 1: I'm Caroline Hyde and Bloomberg's World head quarters in New York,

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Speaker 1: and I Mede Lodlow in San Francisco. This is a

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Speaker 1: special edition of Bloomberg Technology because ed Today we are

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Speaker 1: focusing on the biggest bank failure since the two thousand

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Speaker 1: and eight financial crisis. Silicon Valley Bank started the year

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Speaker 1: with more than two hundred billion dollars in assets. Today

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Speaker 1: California regulators closed the bank and sent it into receivership. Basically,

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Speaker 1: it collapsed. A top lender to vc BAT startups. SVB,

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Speaker 1: the parent company, had quadrupled the size of Silicon Valley

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Speaker 1: Bank in the past five years. Now it's the second

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Speaker 1: bank Silicon Valley Bank is to fold in a week

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Speaker 1: after Silvergate's bankruptcy. This story is bleeding into the banking sector,

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Speaker 1: into the tech sector, into the financial markets at large,

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Speaker 1: and has the attention of not only financial regulators, the

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Speaker 1: white housetop bench capitalists, tech founders of all backgrounds. Just

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Speaker 1: tell us a little bit about how it's impacting individual

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Speaker 1: companies at this moment. Well. First off, the BAT trading

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Speaker 1: of SVB Financial Group was suspended, halting petting news and

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Speaker 1: never did trade had a really profound impact in equity markets,

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Speaker 1: the KBW Bank Index down four percent, But actually other names,

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Speaker 1: particularly regional lenders, where contagion risk and concern was building,

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Speaker 1: we saw pretty deep declines First Republic and Signature Bank.

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Speaker 1: Some of those names where we did see severe reaction

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Speaker 1: was of course in SVB Group's bonds. It's debts. So

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Speaker 1: I'm looking at the twenty thirty three note in particular.

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Speaker 1: We are deep into distressed territory, in this case trading

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Speaker 1: forty five cents on the dollar caroline. But what we

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Speaker 1: have is a situation where the FDIC has come in

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Speaker 1: and has taken control of this bank, and the latest

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Speaker 1: Bloomberg reporting is that they are trying to find a

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Speaker 1: buyer to come in and take on these assets for

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Speaker 1: what is left. Shanali Bassak, who has been on air

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Speaker 1: all day pushing this story forward as we brace ourselves

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Speaker 1: for this weekend. Nowtionally, what do we anticipate to be

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Speaker 1: coming from regulators? What do we anticipate in terms of

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Speaker 1: who could be some sort of salvation right now? Yeah,

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Speaker 1: I think it's very important to think about the process

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Speaker 1: here moving forward for Silicon Valley Bank because there's a

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Speaker 1: few things. One on the regulatory perspective now that it

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Speaker 1: is in receivership. Remember, the FDIC retains all these assets now,

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Speaker 1: and if you think about what happens in the event

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Speaker 1: of a sale, they can move through a sale process

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Speaker 1: or they could sell certain assets. That's one thing to

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Speaker 1: think about. Remember there's also this issue here for customers,

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Speaker 1: because if you have above and beyond two hundred and

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Speaker 1: fifty thousand dollars, you need to be calling the FDIC

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Speaker 1: at this point because that is the amount the FDIC

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Speaker 1: insures per account. Right then, separately, you also have this

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Speaker 1: other issue here of what happens to the clients that

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Speaker 1: Silicon Valley Bank has lent to those venture backed loans.

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Speaker 1: Are they callable in any fashion? Is there any worries

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Speaker 1: about the clients that do exist for Silicon Valley Bank.

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Speaker 1: Of course, are many venture capitalists that are very worried

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Speaker 1: about the companies being able to make payroll. The point

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Speaker 1: here is that this was a technical failure by FDIC standards.

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Speaker 1: You know, silvi Gate also a part of this discussion

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Speaker 1: and voluntarily wound down. But you're exactly right. You and

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Speaker 1: I have been tracking for twenty four hours what so

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Speaker 1: many startup founders are doing as well with their own

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Speaker 1: cash moving it to other banks. We've reported some of

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Speaker 1: that movement. What do we know about what clients are

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Speaker 1: doing to manage this situation, Shinali with their funds. Yeah,

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Speaker 1: we know. For example, remember because some of these assets

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Speaker 1: are not necessarily ensured, so those are the assets that

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Speaker 1: were very worried about. The customer base. Four. But remember

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Speaker 1: we've been talking about this ed People act like this

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Speaker 1: is something that happened in twenty four hours. There's a

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Speaker 1: lot that did happen in twenty four hours. But as

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Speaker 1: you know very well, the reason this happened in the

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Speaker 1: first place is because customers slowly started to move deposits.

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Speaker 1: We want to keep an eye on which firms still

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Speaker 1: had deposits with Silicon Valley Bank up to this point,

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Speaker 1: but there was a slow, steady movement and they had

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Speaker 1: to sell assets at a loss to meet those deposits. Lastly,

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Speaker 1: I would just say, for a matter of definition, this

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Speaker 1: is one of the largest bank failures in US history

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Speaker 1: in the sense that it is the second largest bank

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Speaker 1: holding company failure since Washington Mutual Lehman Brothers was not

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Speaker 1: necessarily a bank holding company. There are sales involved at

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Speaker 1: the two hundred two thousand and eight crisis era. So

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Speaker 1: this failure is a very technical one, as you're saying,

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Speaker 1: and it is pretty unique in nature, and it is

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Speaker 1: a very different time than two thousand and eight, so

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Speaker 1: quite contained right as people see into the market, and

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Speaker 1: so much of this is about psychology. That's what we

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Speaker 1: keep hearing in the market, psychology of what was contributing

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Speaker 1: to the run bloom Nocenali Bassek. We'll have you back

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Speaker 1: later on in the show. I want to bring in

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Speaker 1: Argent Seti, co founder of Tribe Capital or VC with

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Speaker 1: about one point seven billion dollars of assets. Sethi says

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Speaker 1: venture capitalists should prioritize founders and their employees as well

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Speaker 1: as payroll and banking partners. Welcome to the program. You

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Speaker 1: and I have been talking on and off for twenty

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Speaker 1: four hours or so. Where do you stand as a

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Speaker 1: venture catalyst who's p folio companies use Silicon Valley Bank? Yeah,

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Speaker 1: I think what's in Thanks for having me. I think

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Speaker 1: what's important about understanding the people that are going to

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Speaker 1: be the most affected here are early in mid stage

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Speaker 1: companies more so than late stage companies. By the time

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Speaker 1: you get to a certain stage of revenue and in

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Speaker 1: balance sheet, you start thinking about diversifying your risk and

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Speaker 1: the types of partners that you have around the table,

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Speaker 1: so Bargain, Stanley, JP, Morgan City Bank, Exsider, the whole

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Speaker 1: list of the larger banks. I think the thing that's

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Speaker 1: really important that people have been forgetting is that our

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Speaker 1: job in our ecosystem, so as an investor, as a

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Speaker 1: fiduciary of capital, as a fiduciary sitting on the boards

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Speaker 1: of these companies, is to make sure that we're giving

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Speaker 1: them the best advice and we will make sure that

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Speaker 1: we can help them think about what they need to do,

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Speaker 1: and for a large set of us, not just me.

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Speaker 1: You know, we started giving this advice a couple of

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Speaker 1: weeks ago, probably more so when we got louder over

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Speaker 1: the last week and then obviously over the last between

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Speaker 1: of twenty four to forty eight hours. But it's really

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Speaker 1: just about diversifying your risk. Where you're cash is sitting

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Speaker 1: and then how you're sweeping that cash. Is it in

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Speaker 1: treasuries depending on how much deposits you have in the

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Speaker 1: first place. The second piece I think a lot of

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Speaker 1: people forget is that a lot of these companies do

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Speaker 1: rely on banks UM and you know, Silicon Valley Bank

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Speaker 1: was a pillar of the community that helped support a

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Speaker 1: lot of the UM you know, underwriting the risk of

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Speaker 1: the assets in order to get them ventured debt. You know,

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Speaker 1: they worked with a lot of venture funds, but you know,

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Speaker 1: they were a lender. They were also a lender for

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Speaker 1: capital call lines of credit for funds. Funds bank with them,

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Speaker 1: not just our management companies, but the funds themselves. So

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Speaker 1: this actually reverberates pretty you know, pretty quickly in the

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Speaker 1: ecosystem around what what it's going to look like for

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Speaker 1: not just the companies, but they're backers. Does ULL fund

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Speaker 1: back for them? We do not bank with SBB. We

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Speaker 1: bank with a larger a larger set of providers that

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Speaker 1: are out there. And then our capital call lines of

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Speaker 1: credit are with different service providers. A knowledge just again,

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Speaker 1: let's start with the issues for the portfolio companies. If

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Speaker 1: they want to make payroll, for example, you're giving them advice.

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Speaker 1: At what point do you and ow the VC backs

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Speaker 1: need to give lines of credit, give money without the

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Speaker 1: strings attached to those founders those companies if they can't

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Speaker 1: access it from their own banks at the moment. Yeah,

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Speaker 1: it's a good question. I mean, I think, you know,

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Speaker 1: there's some venture capitalists that might not be in the

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Speaker 1: capable they might not have the capability to fund. It's

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Speaker 1: not as easy as just you know, sending the check.

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Speaker 1: I saw some tweets from some angel investors. In my opinion,

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Speaker 1: they're sort of ill educated on the process. You can't

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Speaker 1: just wire money to help the company, right, There's a

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Speaker 1: process that you go through. You have to your fiducure

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Speaker 1: and understanding the risk of where the company is and

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Speaker 1: and if you know if the company itself is underwriteable

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Speaker 1: in the first place. So again, early stage, in mid stage,

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Speaker 1: this is more of an issue. Late stage it's less

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Speaker 1: of an issue. But for some of these companies that

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Speaker 1: don't have the ability to access payroll, you know. I

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Speaker 1: think a lot of what we're trying to do is

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Speaker 1: who can we set them up with that has the

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Speaker 1: capability to underwrite them. What can we do in the

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Speaker 1: short term, Do we do bridge loans? Do we write

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Speaker 1: more investment into the company through equity. I think one

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Speaker 1: of the issues is that you know, you're going to

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Speaker 1: have a lot of predatory folks out there going after

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Speaker 1: some of these companies if they can meet some of

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Speaker 1: these liabilities, and an article again as fiduciaries, is to

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Speaker 1: make sure that doesn't happen. What's interesting, of course, Ed,

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Speaker 1: is you've been writing throughout the day. Who then, we

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Speaker 1: haven't hate to say the silver cloud silver linings in

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Speaker 1: these clouds, but who benefits? Where does the money flow

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Speaker 1: ultimately from portfolio companies that are trying to diversify at

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Speaker 1: this moment, and indeed the vcs too, well, there are

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Speaker 1: many VNCH catalysts that believe actually staying put was the

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Speaker 1: right move. But the name that I kept hearing time

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Speaker 1: and time again was JP Morgan, you know, that was

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Speaker 1: getting a lot of phone calls, but also some lesser

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Speaker 1: known banks Mercury as an example, some vcs saying get

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Speaker 1: a bit of your capital and bigger banks, but go

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Speaker 1: with some of the startups too because of the benefits

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Speaker 1: they're offering. What was really interesting as well is this

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Speaker 1: is kind of laying bare the situation right now for

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Speaker 1: being a startup, being a founder, right Argent, you've been

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Speaker 1: writing about the desert that we are traveling through in

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Speaker 1: the world of VC and startops. There is a deficit

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Speaker 1: of available capital. And my question to you is how

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Speaker 1: much worse is that now given the events of the

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Speaker 1: past twenty four hours. Yeah, So there's two pieces here.

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Speaker 1: Over the last five years. I think the way to

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Speaker 1: think about it is the FED the first printed trillions

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Speaker 1: of dollars, then they denied anything was happening, Then they

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Speaker 1: said it was transitory. Then you know, we put their

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Speaker 1: rates to them. And so what happens is there's a

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Speaker 1: lot of trickle effects that come from this. So the

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Speaker 1: first is that a lot of venture capital went into

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Speaker 1: a lot of these companies, may they be good or bad.

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Speaker 1: So roughly about a trillion and a half over the

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Speaker 1: last four to five years those companies. In order for

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Speaker 1: them to meet their demands or growth concerns, they probably

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Speaker 1: need another three to four trillion of capital. Where is

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Speaker 1: that going to come from? That? This was before SVB,

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Speaker 1: and so that becomes an issue. Now all of a

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Speaker 1: sudden you have SEB. People generally get scared. You know,

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Speaker 1: it may not be logical, and there might be capital

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Speaker 1: around the table, but just get scared and their deer

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Speaker 1: in the headlights. So I think what you're going to

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Speaker 1: see is flight to safety. What are the assets that

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Speaker 1: you go after? How do you continue to bankroll them.

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Speaker 1: How do you do a concentration of your time am

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Speaker 1: capital into these companies in which ones are going to

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Speaker 1: be resilient and so you know, I think this probably

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Speaker 1: takes about three to six months to go through the system.

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Speaker 1: I do think it gets worse over the next twelve

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Speaker 1: to sixteen months, just because a lot more companies will

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Speaker 1: need access to that capital. And I think the one

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Speaker 1: thing that people really forget here is that these companies

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Speaker 1: need this capital and rocro or in order to hit

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Speaker 1: their certain thresholds of their unit economics because most of

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Speaker 1: them still haven't been able to shed enough. People still

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Speaker 1: haven't been able to get into a place that's healthy,

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Speaker 1: and you know, the capital needs are going to become

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Speaker 1: greater and greater over the next year. Ultimately many are

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Speaker 1: loss making. Tribe Capital cofounder Argent Sethi, thank you so

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Speaker 1: much for providing information across social media channels, but for

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Speaker 1: coming on this show too. We appreciate it zero. Our

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Speaker 1: recent developments the concern a few banks that I'm monitoring

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Speaker 1: very carefully, and when banks experience financial losses, it is

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Speaker 1: and should be a murder of concern US Treasury Secretary

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Speaker 1: Janny Ellen. They're saying she was monitoring the situation, also

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Speaker 1: said that the US banking system remains resilient to the

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Speaker 1: regulators have quote effective tools to address the fallout from

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Speaker 1: the collapse of Silicon Valley Bank. She's called a meeting,

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Speaker 1: of course, with the leaders of the Federal Reserve, the FDIC,

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Speaker 1: the officer of the Control of the currency, to discuss

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Speaker 1: developments around SVB. Before we get to those overall regulatory discussions,

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Speaker 1: and I want to bring you some breaking news because

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Speaker 1: this has huge overarching implications for publicly traded companies. Roku

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Speaker 1: currently saying that twenty six percent I reiterate a quarter

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Speaker 1: of Roku's total cash and cash equivalents are held with SBB.

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Speaker 1: The company's deposits are with SVB a largely unensured and

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Speaker 1: they don't know what extent it can recover those cash

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Speaker 1: deposit deposits. So currently Roku, of course, the makeup of

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Speaker 1: the way in which you consume perhaps what you're watching

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Speaker 1: at this very moment, twenty six percent of its total

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Speaker 1: cash and cash equivalents are held with SVB, and ed

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Speaker 1: existing cash flow is enough for the next twelve months

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Speaker 1: and beyond. Of course, this is a later stage company

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Speaker 1: in public company and one that we keep a close

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Speaker 1: eye on currently falling six percent after ours ed. Yeah,

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Speaker 1: it's it's a question we're asking, right forget not just

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Speaker 1: private startups the founders. There are a number, okay they're

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Speaker 1: smaller cap companies, but public companies that use Silicon Valley

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Speaker 1: Bank because until earlier today it was a critical bank

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Speaker 1: for the world of technology and companies founded over this

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Speaker 1: nation and beyond. And this is why we then worry

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Speaker 1: a lot about the startups who don't have twelve months

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Speaker 1: and beyond of existing cash flow. Let's talk about the

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Speaker 1: ripple effects and where next the regulators are going to

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Speaker 1: be watching. Of course, most Kylee Lines has been doing

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Speaker 1: incredible work, having newly moved to Washington, and now our

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Speaker 1: regulatory overseer really just talk to us, Kayley, about what

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Speaker 1: we loot full next. Coming from the likes of the

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Speaker 1: FDIC and indeed John Allen herself well for the FDICE,

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Speaker 1: this really goes back to Roku in the question of

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Speaker 1: uninsured deposits, because remember, this is the first failure of

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Speaker 1: an insured institution we've seen this year, one of the

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Speaker 1: largest we have seen in history. But that insurance only

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Speaker 1: goes so far. That cap is two hundred and fifty

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Speaker 1: thousand dollars, and from our understanding, more than ninety percent

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Speaker 1: of the deposits Dot Silicon Valley Bank were uninsured. So

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Speaker 1: that is really going to be question number one what

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Speaker 1: happens with those uninsured deposits. Are those depositors going to

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Speaker 1: be made whole? That is going to be one of

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Speaker 1: the priorities that we are following on, especially as you

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Speaker 1: guys were just alluding to for those early sage companies

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Speaker 1: that may be short on cash at this point, then

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Speaker 1: it becomes a question of any kind of ripple effects.

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Speaker 1: Are we going to see other episodes of this or

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Speaker 1: was this an isolated incidents. Journalie and I were speaking

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Speaker 1: with a former official from the FDIC's earlier who said, I, look,

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Speaker 1: regulators are really hoping that this is just an isolated

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Speaker 1: that they can contain. And I would note that Jenny Ellen,

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Speaker 1: as well as the broader White House, including the Council

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Speaker 1: of Economic Advisors Director Cecilia Rouse, did express confidence in

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Speaker 1: what regulators are doing here, and Rouse was quick to

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Speaker 1: point out that this is not two thousand and eight.

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Speaker 1: We are post two thousand and eight. We are a

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Speaker 1: postad Frank, there are now capital and liquidity requirements stressed

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Speaker 1: at better in place, and really the banking system and

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Speaker 1: theory is much more resilient now than it was then.

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Speaker 1: Bloomer's Kayley lines out in DC, thank you. The regulatory

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Speaker 1: conversation is not going to stop here, and we will

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Speaker 1: continue it with our in Kleine, economic senior fellow at

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Speaker 1: the Brookings Institution. You've been working on financial regulatory reform

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Speaker 1: issues for a very long time. The Department of the

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Speaker 1: Treasury and Economic Advisor to the Senate Banking Housy Housing

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Speaker 1: an Urban Affairs Committee. No. Yellen saying she has full

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Speaker 1: confidence in the banking regulators. The FDIC has come in

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Speaker 1: taken control at Silicon Valley Bank and will oversee the

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Speaker 1: sale process. Do you have that confidence based on your

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Speaker 1: experience in this area. I do. Look, the FDIC has

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Speaker 1: done a great job in handling and resolving institutions. Actually

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Speaker 1: generally speaking, they're able to do so at a small

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Speaker 1: cost of taxpayers and tend to recover a lot for

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Speaker 1: uninsured depositors. But each bank failure is a little bit different.

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Speaker 1: Keep in mind, this bank was overseen at the federal

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Speaker 1: level by the Federal Reserve, the Federal Reserve Bank of

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Speaker 1: San Francisco was Silicon Valley banks number one federal regulator,

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Speaker 1: and so the San Francisco FED should have been on

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Speaker 1: top of what was going on the bank's explosive growth.

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Speaker 1: And now it's very quick failure. But there are a

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Speaker 1: lot of tools the FDIC has to handle this resolution situation,

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Speaker 1: and I do think there's confidence. So there's a large bank,

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Speaker 1: sixteenth largest bank in the country. Yeah, but it's not

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Speaker 1: your typical bank. It only has sixteen branches. It's a

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Speaker 1: very different structured bank than most of its peers around

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Speaker 1: that same size. Are just bringing the breaking news. It

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Speaker 1: continues to unfold. We currently understand the SVB Financial Group,

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Speaker 1: perhaps on surprise in newscoping room from the SMP five

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Speaker 1: hundred as an index insulates the company that will replace it.

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Speaker 1: But just talk us through what got us here ultimately,

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Speaker 1: and whether the regulations that you have been so crucial

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Speaker 1: informing in many ways and analyzing the repercussions thereof whether

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Speaker 1: they're the right regulations, the right ways in which banks

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Speaker 1: currently hold capital, but in some ways can lead to

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Speaker 1: extraordinary circumstances that we find with SVB. Right, So let's

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Speaker 1: start with the premise my premises banks should fail. We

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Speaker 1: have nearly five thousand banks in America, and a healthy

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Speaker 1: amount of failure is greater than zero. I was more

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Speaker 1: concerned the last two years when not a single bank failed.

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Speaker 1: By the way, the first time in American history we

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Speaker 1: went a year without a bank failure was two thousand

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Speaker 1: and five. Regulators told us the banking system was in

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Speaker 1: great shape, and not a single bank failed again in

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Speaker 1: oh six oops. So a little bit of failure is

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Speaker 1: actually a desirable thing, not something to be afraid up.

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Speaker 1: The question is when anitution fails, is that failure contained,

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Speaker 1: who bears the losses of it? And how quickly can

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Speaker 1: this situation be resolved? And in that situation, I think

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Speaker 1: the regulatory tools the FDIC and the Federal Reserve and

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Speaker 1: other regulators have now or light years ahead of what

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Speaker 1: they had in two thousand and seven and eight, when

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Speaker 1: the cause of the crisis was very different. Aaron, A

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Speaker 1: lot of people out there have a lot of questions,

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Speaker 1: principally startup founders who were banking with Silicon Valley Bank.

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Speaker 1: When the FDIC comes into an institution in this situation,

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Speaker 1: what is their priority? You look at the chart on

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Speaker 1: the screen, you can't even see it on the right

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Speaker 1: hand side, because this is the first technical FDIC failure

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Speaker 1: in a very very long time, in the first of

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Speaker 1: this year so well. Silvergate Bank is another bank that

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Speaker 1: failed very recently, if you want to call it a

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Speaker 1: technical failure, not Sometimes the FDS is able to negotiate

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Speaker 1: purchase an assumption here where other banks take the assets

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Speaker 1: of the other bank. The FDS is number one priority,

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Speaker 1: or the retail customers and the insured depositors who are

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Speaker 1: going to be able to have access to their money,

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Speaker 1: almost like nothing happened. There's just a bit of a rebranding.

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Speaker 1: That's their number one priority. Uninsured depositors, businesses their number

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Speaker 1: two priorities to try to maximize the ongoing value of

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Speaker 1: the institution, to minimize the loss felt by everybody, including

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Speaker 1: uninsured depositors. But I want to point something out here,

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Speaker 1: and I hope we get a chance to discuss it,

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Speaker 1: which is the FDIC isn't the first person to have

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Speaker 1: a claimant. So if you think about who owns to

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Speaker 1: who has a claim on this bank's assets, the FDSC

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Speaker 1: is number two. Number one. Is this kind of arcane

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Speaker 1: part of the government called the Federal Homelan bank system

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Speaker 1: and the Federal Homelan Bank of San Francisco had lent

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Speaker 1: more money to Silicon Valley Bank than to any other

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Speaker 1: bank they did business with at its time of its failure. Okay,

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Speaker 1: so Digg in the fall, you've done analysis and what

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Speaker 1: other companies, what other lenders have perhaps exposure to the

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Speaker 1: homelowans element of things? Are we likely to see? What's

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Speaker 1: a contagion risk here? What's ultimately going to be the

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Speaker 1: likelihood of also the uninsured companies, the likes of Roku

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Speaker 1: that comes out says twenty six percent whose cash balances

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Speaker 1: are over in Silicon Valley Bank and ultimately aren't ensured.

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Speaker 1: What are the ripple effects here? So there are a

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Speaker 1: couple of things. Number one, the people that run to

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Speaker 1: the homeland bank system that are heavy users of it,

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Speaker 1: particularly that come very very quick. A year ago, Silicon

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Speaker 1: Valley Bank didn't even appear on the top list of

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Speaker 1: borrowers from the Federal Homelone Bank of San Francisco, and

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Speaker 1: you know, within a year they'd vaulted to number one

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Speaker 1: twenty billion dollars of outstanding advances. Silvergate, at the time

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Speaker 1: of its failure had over four billion dollars of outstanding

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Speaker 1: advances to you look at the list of other people

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Speaker 1: that have started leaning very heavily on the homeline bank system,

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Speaker 1: and you ask the question, why why are they going there,

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Speaker 1: particularly a bank like Silver Bank, which isn't really making mortgages. Right,

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Speaker 1: The purpose of the homelan bank system originally, when you

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Speaker 1: go back one hundred years, it was supposed to be

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Speaker 1: a federal reserve kind of for these things called thrifts.

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Speaker 1: They used to make mortgages when America had a very

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Speaker 1: different banking system and a bank and a were different things.

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Speaker 1: So I kind of look there, that's a classic red flag.

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Speaker 1: If you go back to two thousand and seven Countrywide

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Speaker 1: Washington Mutual, all those folks were the ones that were

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Speaker 1: running to the homeland bank system and oh seven long

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Speaker 1: after the market had started to dry up on the

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Speaker 1: asset that they were over invested in. Yeah, Brookings Institution,

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Speaker 1: Aaron Kleine, We thank you so much for the intricacies

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Speaker 1: around regulation there, and we want to go back to

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Speaker 1: the companies that currently exposed to Silicon Valley Bank that

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Speaker 1: are going to be worrying about well whether the deposits,

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Speaker 1: whether their money at the lender is going to be ensured.

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Speaker 1: Roadblocks coming out saying the SVB situation won't affect his operations,

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Speaker 1: but roadblocks of course. The gaming company says five percent

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Speaker 1: of its balance is held at SVP. Roku has already

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Speaker 1: come out and said twenty six percent overall of its

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Speaker 1: cash has been held over at SVB. Existing cash flow, though,

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Speaker 1: is enough for the next twelve months and beyond, they say,

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Speaker 1: and they don't know what extent it can recover those

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Speaker 1: SVB cash deposits. One last headline for you. Rocket Lab

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Speaker 1: has deposit accounts with SBB, totaling of ballets of thirty

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Speaker 1: eight million. It's about seven point nine percent of cash

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Speaker 1: and equivalents with SVB. We have so much more going

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Speaker 1: on after the break. This is bloom Bag. I'm Creana

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Speaker 1: of the startups and venture capital team. I'm outside Silicon

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Speaker 1: Valley Banks office in San Francisco. They're in the NASTAP building.

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Speaker 1: All morning, there's been a slow trickle of customers coming in,

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Speaker 1: only one every fifteen twenty minutes or so, and they're

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Speaker 1: being redirected to the banks Powell Alto office on Sandhill Road.

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Speaker 1: Are being told that if they want any information, that's

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Speaker 1: where they have to go. It's unclear whether anyone is

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Speaker 1: even in this office right now in San Francisco. Welcome

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Speaker 1: back to a special edition of Bloomberg Technology. I'm Ed

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Speaker 1: Ludlow in San Francisco and Caroline Hyde in New York

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Speaker 1: on the ground reporting there. Let's get back to what

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Speaker 1: happened in the days markets trade, in the week the

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Speaker 1: markets trade because remember this did seem to evolve all

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Speaker 1: at once over the last twenty four hours, but it

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Speaker 1: has had a damaging effect on the NASDAC on risk

432
00:22:26,440 --> 00:22:29,840
Speaker 1: sentiment in general. The overall collapse of Silicon Valley Bank,

433
00:22:30,000 --> 00:22:32,920
Speaker 1: which swiftly followed a called Silva Gate earlier in the week,

434
00:22:33,040 --> 00:22:35,040
Speaker 1: the nazacs off by four point seven percent. This is

435
00:22:35,080 --> 00:22:37,439
Speaker 1: also largely to do with the Federal Reserve, with the

436
00:22:37,480 --> 00:22:40,439
Speaker 1: increase and interest rates at many braceful that's ultimately behind

437
00:22:40,840 --> 00:22:43,359
Speaker 1: the collapse of these lenders. We're seeing crypto on the

438
00:22:43,359 --> 00:22:45,479
Speaker 1: downside more than nine percent, having its worst weeks. It's

439
00:22:45,480 --> 00:22:48,320
Speaker 1: in mid November. We're looking at the flight to safety

440
00:22:48,480 --> 00:22:51,800
Speaker 1: yields crescendoing lower, the US tenure yield off by a

441
00:22:51,880 --> 00:22:54,080
Speaker 1: quarter of a percentage point. Move it on. Look at

442
00:22:54,080 --> 00:22:56,840
Speaker 1: what's happened across the assets. Ed. We're looking at the

443
00:22:56,880 --> 00:22:59,960
Speaker 1: bond market that really exemplified some of the risks inside

444
00:23:00,240 --> 00:23:03,040
Speaker 1: what happened with Silicon Valley Bank. How swiftly the overall

445
00:23:03,040 --> 00:23:06,520
Speaker 1: bond prices fell Silicon Valley Bank SVB, the parent company,

446
00:23:06,720 --> 00:23:09,600
Speaker 1: forty three percent as where they're training out, so just

447
00:23:09,640 --> 00:23:11,520
Speaker 1: forty three cents on the dollar fory or bonds. We're

448
00:23:11,560 --> 00:23:14,359
Speaker 1: seeing also though, some marked discounts where other key lenders,

449
00:23:14,400 --> 00:23:16,240
Speaker 1: like in the space in purple, of course, you can

450
00:23:16,280 --> 00:23:19,080
Speaker 1: see the likes of some other of those smaller lenders,

451
00:23:19,160 --> 00:23:21,760
Speaker 1: Western Alliance as their first republic is there in the

452
00:23:21,840 --> 00:23:25,680
Speaker 1: teal color ed. The next question is what happened to

453
00:23:25,760 --> 00:23:27,919
Speaker 1: the future of those assets held by the bank, What

454
00:23:28,000 --> 00:23:30,679
Speaker 1: happens to the bank, and what happens to the companies

455
00:23:30,720 --> 00:23:33,400
Speaker 1: that were banking with and not just the private ones.

456
00:23:33,440 --> 00:23:36,440
Speaker 1: We're getting loads of headlines about the public companies. They're

457
00:23:36,520 --> 00:23:39,639
Speaker 1: exposures to svbing, what they've done to mitigate it. Joining

458
00:23:39,680 --> 00:23:42,040
Speaker 1: us now, Bloombergs Max rays Max give us the latest

459
00:23:42,080 --> 00:23:45,280
Speaker 1: headlines and news out of Silicon Valley Bank. Sure, well,

460
00:23:45,320 --> 00:23:48,880
Speaker 1: exactly like you're saying, we are seeing public companies come

461
00:23:48,880 --> 00:23:52,600
Speaker 1: out in regulatory filings this afternoon, telling us essentially how

462
00:23:52,640 --> 00:23:54,679
Speaker 1: much exposure they have, how much money is lacked up

463
00:23:54,720 --> 00:23:56,560
Speaker 1: at the bank, and just to kind of make sure

464
00:23:56,600 --> 00:23:58,280
Speaker 1: we're on the same page. When you see a bank

465
00:23:58,359 --> 00:24:00,679
Speaker 1: run like this, the concern is that if you have

466
00:24:00,800 --> 00:24:03,480
Speaker 1: deposits that are not ensured, if the bank fails, you

467
00:24:03,560 --> 00:24:05,399
Speaker 1: won't have access to those funds and it becomes a

468
00:24:05,480 --> 00:24:09,240
Speaker 1: question of whether or not you're ever reimbursed. Right, and

469
00:24:10,080 --> 00:24:12,640
Speaker 1: particularly with a commercial bank that is so focused on

470
00:24:12,640 --> 00:24:15,920
Speaker 1: one sector, if everyone panics at once and you see

471
00:24:15,920 --> 00:24:18,919
Speaker 1: this draw down that's kind of motivated by talk on Twitter,

472
00:24:19,000 --> 00:24:22,120
Speaker 1: by talk from vcs telling their portfolio companies to get out,

473
00:24:22,160 --> 00:24:25,359
Speaker 1: you see the sort of situation, right. It's almost, you know,

474
00:24:25,520 --> 00:24:28,720
Speaker 1: a classic prisoner's dilemma where if everyone works together, we

475
00:24:28,760 --> 00:24:31,439
Speaker 1: won't see this happen, but if even one person breaks,

476
00:24:31,440 --> 00:24:34,080
Speaker 1: you have the situation where folks are really in dire

477
00:24:34,119 --> 00:24:36,280
Speaker 1: straits with money locked up in this bank and no

478
00:24:36,440 --> 00:24:41,080
Speaker 1: clear way of getting at it. Ultimately, Max talk to

479
00:24:41,119 --> 00:24:43,000
Speaker 1: us about the contagion effect. We're just seeing the bond

480
00:24:43,000 --> 00:24:45,640
Speaker 1: prices of some other lenders there. How much all people

481
00:24:45,720 --> 00:24:49,040
Speaker 1: now focusing in on other regional lenders are the key

482
00:24:49,320 --> 00:24:52,640
Speaker 1: constituents that maybe some them all focused on the tech

483
00:24:52,720 --> 00:24:55,240
Speaker 1: sector too. Yeah, I want to be very careful with

484
00:24:55,280 --> 00:24:58,000
Speaker 1: how I talk about this, just because SIVB is a

485
00:24:58,119 --> 00:25:00,320
Speaker 1: very unique animal when it comes to banking. There's not

486
00:25:00,320 --> 00:25:03,040
Speaker 1: really a bank with such a singular focus. Silvergate was

487
00:25:03,080 --> 00:25:04,919
Speaker 1: the same way but for crypto, where it had this

488
00:25:05,080 --> 00:25:08,480
Speaker 1: very very myopic focus on this one industry which made

489
00:25:08,520 --> 00:25:11,320
Speaker 1: it very susceptible to a moment like this. But yeah,

490
00:25:11,400 --> 00:25:14,639
Speaker 1: there is definitely concerns around contagion. People are afraid that

491
00:25:14,720 --> 00:25:16,800
Speaker 1: this could happen elsewhere. And the key thing driving it,

492
00:25:16,840 --> 00:25:19,000
Speaker 1: like you guys have been saying all day, his interest

493
00:25:19,080 --> 00:25:21,240
Speaker 1: rates the fact that the banks, their asset side of

494
00:25:21,280 --> 00:25:23,760
Speaker 1: the balance sheet has been underwater for a while at

495
00:25:23,760 --> 00:25:27,040
Speaker 1: this point, just because they bought these bonds for you know,

496
00:25:27,119 --> 00:25:29,520
Speaker 1: less than their worth currently, which means that if they

497
00:25:29,560 --> 00:25:31,439
Speaker 1: do have to sell them, they are going to realize losses.

498
00:25:31,440 --> 00:25:33,080
Speaker 1: And that's what we've been seeing here and that's been

499
00:25:33,560 --> 00:25:35,800
Speaker 1: driving this. I think it's fair to call it a

500
00:25:35,840 --> 00:25:37,960
Speaker 1: crisis at this point, you know, at least among a

501
00:25:37,960 --> 00:25:41,040
Speaker 1: few banking institutions in California, and I think everyone is

502
00:25:41,080 --> 00:25:43,120
Speaker 1: trying to sort out what comes next, But I don't

503
00:25:43,119 --> 00:25:45,879
Speaker 1: want to prognosticate Max. I have a feeling you have

504
00:25:45,880 --> 00:25:48,520
Speaker 1: a busy weekend. Well, thank you so much. Max. Ways,

505
00:25:48,840 --> 00:25:52,360
Speaker 1: he's been just so thorough on this story, and there

506
00:25:52,359 --> 00:25:54,600
Speaker 1: have been ripple effects far and wide. Let's dig in too,

507
00:25:54,680 --> 00:25:57,840
Speaker 1: of course, the impact on startups on the venture community,

508
00:25:57,840 --> 00:26:01,480
Speaker 1: in particular Jenny Fielding. She's well known in seed investing.

509
00:26:01,480 --> 00:26:03,639
Speaker 1: She's managing partner and co founder at the Fund. It's

510
00:26:03,640 --> 00:26:06,520
Speaker 1: a VC firm focusing in early stage tech startups. You

511
00:26:06,680 --> 00:26:09,119
Speaker 1: have not only are an abject professor at Columbia and

512
00:26:09,240 --> 00:26:12,080
Speaker 1: teaching at Cornell Tech, but you're also very prolific when

513
00:26:12,080 --> 00:26:14,800
Speaker 1: it was work with tech stars. Jenny, what have you

514
00:26:14,840 --> 00:26:18,959
Speaker 1: been advising your portfolio companies in this day alone? I mean,

515
00:26:19,040 --> 00:26:22,920
Speaker 1: it's been incredible chaos, So my phone has been blowing up.

516
00:26:23,160 --> 00:26:26,160
Speaker 1: We have two hundred and fifty portfolio companies and I'd

517
00:26:26,200 --> 00:26:29,800
Speaker 1: say about thirty percent are involved with SVB. So the

518
00:26:29,840 --> 00:26:32,040
Speaker 1: first thing we said to them yesterday is we need

519
00:26:32,040 --> 00:26:34,440
Speaker 1: to stay calm and we need to all get collectively

520
00:26:34,480 --> 00:26:37,440
Speaker 1: on the same page of what's happening. So in our case,

521
00:26:37,520 --> 00:26:39,600
Speaker 1: we have two hundred and fifty portfolio companies. We have

522
00:26:39,640 --> 00:26:43,080
Speaker 1: another five hundred LPs that are also founders. So all

523
00:26:43,080 --> 00:26:45,160
Speaker 1: of these people we have in our community and they're

524
00:26:45,160 --> 00:26:48,400
Speaker 1: really suffering. So in terms of advice, we tend to

525
00:26:48,440 --> 00:26:53,199
Speaker 1: take an approach of let's share information and founders need

526
00:26:53,240 --> 00:26:56,679
Speaker 1: to make their own decisions. Ultimately, do you have a

527
00:26:56,720 --> 00:26:59,119
Speaker 1: relationship Basilicon Valley Bank as well at the fund and

528
00:26:59,119 --> 00:27:00,560
Speaker 1: what have you decided to do in terms of your

529
00:27:00,600 --> 00:27:02,560
Speaker 1: own working capital and money that you have with them?

530
00:27:03,080 --> 00:27:06,520
Speaker 1: We do, So I've had a long standing relationship with SPOB.

531
00:27:06,720 --> 00:27:10,919
Speaker 1: They've been incredible supporters of the startup ecosystem and you know,

532
00:27:11,000 --> 00:27:13,440
Speaker 1: quite frankly of the emerging managers like us as well.

533
00:27:13,480 --> 00:27:17,679
Speaker 1: So they've been absolutely critical. We do have banking relationship

534
00:27:17,680 --> 00:27:19,480
Speaker 1: with them, and we do keep assets with them, and

535
00:27:19,520 --> 00:27:21,920
Speaker 1: so it's been a very hard moment. You know, we're

536
00:27:21,960 --> 00:27:24,440
Speaker 1: trying to help our startups, we're also trying to help ourselves,

537
00:27:25,200 --> 00:27:29,760
Speaker 1: so just that contrast has been quite hard, Jenny. What

538
00:27:29,840 --> 00:27:35,000
Speaker 1: I keep hearing from conversations event capitalists and founders is, honestly,

539
00:27:35,040 --> 00:27:38,119
Speaker 1: there's a real concern here not just about the operational

540
00:27:38,240 --> 00:27:41,119
Speaker 1: cash needs of startups, but their mental health as well.

541
00:27:41,359 --> 00:27:43,320
Speaker 1: And I just wondered if you'd reflect on some of

542
00:27:43,320 --> 00:27:47,640
Speaker 1: the conversations you've had with portfolio founders today and how

543
00:27:47,680 --> 00:27:51,120
Speaker 1: difficult it's been for them as leaders, as business operators.

544
00:27:51,720 --> 00:27:54,159
Speaker 1: I canceled pretty much all of my meetings today just

545
00:27:54,359 --> 00:27:58,520
Speaker 1: to field calls from founders. This is a very unsettling time.

546
00:27:58,640 --> 00:28:00,760
Speaker 1: I mean, this is a very hard time in tech,

547
00:28:00,920 --> 00:28:04,080
Speaker 1: you know, just in general, right, you know, the markets

548
00:28:04,080 --> 00:28:07,240
Speaker 1: have created a lot of pressure on these companies. Raising

549
00:28:07,280 --> 00:28:09,960
Speaker 1: capital is not how it was, you know, last year,

550
00:28:10,240 --> 00:28:13,600
Speaker 1: and so compounding what's happening today, a lot of our

551
00:28:13,600 --> 00:28:15,680
Speaker 1: companies are really suffering. So we try to be a

552
00:28:15,720 --> 00:28:18,760
Speaker 1: sounding board. We try to listen, we try to provide resources,

553
00:28:19,600 --> 00:28:24,040
Speaker 1: but ultimately it's it's just a traumatic time. There was

554
00:28:24,560 --> 00:28:29,160
Speaker 1: a proposed idea from Sam Altman that actually what founders

555
00:28:29,200 --> 00:28:32,320
Speaker 1: in startups need right now is cash. Just give cash

556
00:28:32,440 --> 00:28:35,480
Speaker 1: if you can. Does that make sense to you? Is

557
00:28:35,520 --> 00:28:38,160
Speaker 1: it sort of stop gap for what's happening out there

558
00:28:38,200 --> 00:28:42,840
Speaker 1: in terms of making payroll and working capital? It really does.

559
00:28:43,000 --> 00:28:45,479
Speaker 1: I mean venture capitalists like to run around saying they

560
00:28:45,520 --> 00:28:48,040
Speaker 1: provide value. Well, this is the time to provide value

561
00:28:48,040 --> 00:28:50,560
Speaker 1: to your portfolio companies. You need to listen to them,

562
00:28:50,760 --> 00:28:53,200
Speaker 1: and you need to be able to support them, and

563
00:28:53,280 --> 00:28:56,560
Speaker 1: many vcs are able to do that or provide resources. Right,

564
00:28:56,600 --> 00:28:59,200
Speaker 1: there are other opportunities for people to kind of come in.

565
00:28:59,520 --> 00:29:02,800
Speaker 1: But yeah, if you have payroll and you've been tied

566
00:29:02,880 --> 00:29:05,680
Speaker 1: up in Silicon Valley Bank and that money, you know,

567
00:29:05,720 --> 00:29:09,080
Speaker 1: maybe two hundred and fifty thousand is available on Monday.

568
00:29:09,160 --> 00:29:11,720
Speaker 1: If you have fifty employees right making one hundred and

569
00:29:11,800 --> 00:29:15,600
Speaker 1: fifty thousand, you're you're in a you know, a deficit

570
00:29:15,640 --> 00:29:18,520
Speaker 1: of about one hundred thousand dollars just this Monday. So

571
00:29:18,640 --> 00:29:20,440
Speaker 1: everyone is quite nervous, and I think it is a

572
00:29:20,480 --> 00:29:23,880
Speaker 1: time to chip in and support our founders to that point.

573
00:29:24,040 --> 00:29:27,920
Speaker 1: Parker Conrad of Rippling, which is in many ways a

574
00:29:27,920 --> 00:29:31,960
Speaker 1: company that helps a payroll and they themselves discovered yesterday,

575
00:29:32,000 --> 00:29:34,040
Speaker 1: of course the Silicon Valley issued and the fact that

576
00:29:34,080 --> 00:29:37,200
Speaker 1: they have their own exposure and they notified some customers

577
00:29:37,200 --> 00:29:39,440
Speaker 1: that look, some payroll processing is going to be stalled

578
00:29:39,480 --> 00:29:41,920
Speaker 1: because of SBB, even though they did actually switch their

579
00:29:41,920 --> 00:29:44,560
Speaker 1: banking to JP. Morgan in large part talk to us

580
00:29:44,600 --> 00:29:47,360
Speaker 1: about does this have a cascade effect, Like what do

581
00:29:47,400 --> 00:29:50,800
Speaker 1: people do about not being able to make payroll? Do

582
00:29:50,840 --> 00:29:52,880
Speaker 1: they have to let people go. I mean, it's a

583
00:29:52,880 --> 00:29:55,840
Speaker 1: really interesting question. I think that the most important thing

584
00:29:55,880 --> 00:29:58,800
Speaker 1: is there's open communication. Right, we saw in the waves

585
00:29:58,800 --> 00:30:01,760
Speaker 1: of layoffs when they're isn't good communication with your employees,

586
00:30:01,840 --> 00:30:05,000
Speaker 1: That's when things really go awry. So have communication. Our

587
00:30:05,000 --> 00:30:07,680
Speaker 1: founders are speaking to their employees all the time, you

588
00:30:07,720 --> 00:30:10,920
Speaker 1: know today, of what's going on and really warning them.

589
00:30:10,920 --> 00:30:13,640
Speaker 1: And I think that's a great sign of leadership, just

590
00:30:13,720 --> 00:30:17,280
Speaker 1: being proactive. But yes, there is a real worried that

591
00:30:17,440 --> 00:30:21,080
Speaker 1: payroll will not be made on Monday. Jenny Argin from

592
00:30:21,120 --> 00:30:23,320
Speaker 1: Tribe Capital was on the show earlier. He makes the

593
00:30:23,360 --> 00:30:26,840
Speaker 1: point that there was already a funding deficit prior to

594
00:30:26,880 --> 00:30:29,880
Speaker 1: the events of the last twenty four hours. He expects

595
00:30:30,080 --> 00:30:32,480
Speaker 1: a number of startups to fail, but not as many

596
00:30:32,520 --> 00:30:35,680
Speaker 1: as you might think. What is your outlook to the

597
00:30:35,720 --> 00:30:39,640
Speaker 1: health particularly at the early stage. So interestingly, like the

598
00:30:39,680 --> 00:30:43,320
Speaker 1: early stage has been somewhat shielded from some of the

599
00:30:43,320 --> 00:30:45,720
Speaker 1: stuff that's going on. So if you were a startup

600
00:30:45,760 --> 00:30:48,400
Speaker 1: in the series B, Series C, it's been you know,

601
00:30:48,480 --> 00:30:52,160
Speaker 1: quite dire, but early stage has been okay. So our trajectory,

602
00:30:52,160 --> 00:30:55,120
Speaker 1: we're long term investors. We invest at the first round

603
00:30:55,160 --> 00:30:57,880
Speaker 1: of capital. You know, we want to hold our positions

604
00:30:57,920 --> 00:31:01,160
Speaker 1: for ten years, so you know we have a better

605
00:31:01,200 --> 00:31:03,520
Speaker 1: outlook long term. I think short term we need to

606
00:31:03,560 --> 00:31:07,680
Speaker 1: support our founders, and we are worried about the short term.

607
00:31:07,880 --> 00:31:10,640
Speaker 1: Jenny Fielding, managing partner and co founder at the fund,

608
00:31:10,680 --> 00:31:13,320
Speaker 1: helping us cover this story in the short term, that

609
00:31:13,400 --> 00:31:16,920
Speaker 1: we will continue the conversation in the long term. I

610
00:31:16,960 --> 00:31:19,600
Speaker 1: think the right thing, the prudent thing we've learned is

611
00:31:19,680 --> 00:31:22,680
Speaker 1: counterparty risk. Once these things start. This is a classic

612
00:31:22,720 --> 00:31:25,400
Speaker 1: bank run, and when the blank run starts, you don't

613
00:31:25,440 --> 00:31:28,920
Speaker 1: want to be the last guy there and wondering what happened.

614
00:31:29,520 --> 00:31:32,840
Speaker 1: A Labs John wu reaction to the SVB news in

615
00:31:32,880 --> 00:31:35,719
Speaker 1: real time on last night's show, and let's just discuss

616
00:31:35,760 --> 00:31:39,760
Speaker 1: the implications on the crypto space but also well startup space,

617
00:31:39,760 --> 00:31:42,240
Speaker 1: writ large. Dave Weisberger is with us. He's CEO and

618
00:31:42,280 --> 00:31:44,280
Speaker 1: co founder of coin Roots. It's a crypto spot and

619
00:31:44,320 --> 00:31:47,200
Speaker 1: derivatives trading platform. But also, Dave, you're an expert in

620
00:31:47,560 --> 00:31:50,480
Speaker 1: troud fires. Many will call it traditional finance market structure.

621
00:31:50,520 --> 00:31:53,800
Speaker 1: You built electronics trading systems and platforms across names like

622
00:31:53,800 --> 00:31:57,320
Speaker 1: Morgan Stanley, Solomon brothers, and they're like, just tell us

623
00:31:57,360 --> 00:32:01,960
Speaker 1: at the moment whether this is systemic issue across banking

624
00:32:02,760 --> 00:32:07,840
Speaker 1: and also what it means for crypto companies such as yourself. Well,

625
00:32:08,280 --> 00:32:11,280
Speaker 1: it's fascinating actually, because if you think about the core

626
00:32:11,400 --> 00:32:15,080
Speaker 1: of crypto and what bitcoin is about, it's really about

627
00:32:15,080 --> 00:32:18,360
Speaker 1: the opposite of fractional reserve banking. It really is about

628
00:32:18,480 --> 00:32:21,400
Speaker 1: distributed not having to take counterparty risk. I won't take

629
00:32:21,440 --> 00:32:26,240
Speaker 1: credit for it. Mark Yusco from Morten Creek basically does

630
00:32:26,280 --> 00:32:30,840
Speaker 1: a great job. His point is crypto is truth technology

631
00:32:31,120 --> 00:32:35,000
Speaker 1: to replace the need for centralized trust, and so long

632
00:32:35,120 --> 00:32:40,320
Speaker 1: term events like this are massively bullish for the crypto complex.

633
00:32:40,360 --> 00:32:43,960
Speaker 1: Now many of the assets in crypto will actually be

634
00:32:44,040 --> 00:32:47,440
Speaker 1: hurt by this, Bitcoin I think will be helped, and

635
00:32:47,480 --> 00:32:50,920
Speaker 1: we'll see how it goes. As far as is this

636
00:32:51,000 --> 00:32:54,800
Speaker 1: systemic or not, that's a different question. Well, you were

637
00:32:54,840 --> 00:32:56,760
Speaker 1: tweeting earlier, Dave. I'm going to bring one of your

638
00:32:56,800 --> 00:32:59,920
Speaker 1: tweets up on the screen. But your basic argument is

639
00:33:00,080 --> 00:33:04,080
Speaker 1: that the contagion risk, the risk from the banking system

640
00:33:04,200 --> 00:33:07,560
Speaker 1: is actually much more potentially damaging to crypto and tech

641
00:33:07,840 --> 00:33:12,000
Speaker 1: than it is to banks. From crypto, explain your logic here,

642
00:33:12,040 --> 00:33:13,480
Speaker 1: What do you mean in this tweet? What are you

643
00:33:13,520 --> 00:33:16,400
Speaker 1: trying to say? Well, I mean, at the end of

644
00:33:16,440 --> 00:33:20,200
Speaker 1: the day, every time there's been an incident in crypto,

645
00:33:20,320 --> 00:33:24,880
Speaker 1: it hasn't spilled back over to the mainstream until FTX.

646
00:33:25,280 --> 00:33:28,520
Speaker 1: Now FTX is separate from all the other failures. Right,

647
00:33:28,600 --> 00:33:31,680
Speaker 1: So we had three systemic We had three huge failures

648
00:33:31,680 --> 00:33:34,200
Speaker 1: in twenty twenty two in the world of crypto. All

649
00:33:34,680 --> 00:33:38,760
Speaker 1: were preventable with principles based regulation that we should have,

650
00:33:39,200 --> 00:33:43,240
Speaker 1: should have had and should actually build but don't have. Right.

651
00:33:43,320 --> 00:33:46,240
Speaker 1: The first was lots of money in a stable coin

652
00:33:46,280 --> 00:33:50,200
Speaker 1: that wasn't stable. I had zero dollars in Luna, zero

653
00:33:50,240 --> 00:33:54,000
Speaker 1: dollars in ust thought that basically the whole notion of

654
00:33:54,000 --> 00:33:57,200
Speaker 1: an algorithmic stable coin to me, sounds like a Ponzi scheme.

655
00:33:57,240 --> 00:34:01,200
Speaker 1: It's recursive, to use a quantitative term, And ever since

656
00:34:01,240 --> 00:34:03,920
Speaker 1: Basis came out with their first white paper, despite the

657
00:34:04,360 --> 00:34:06,960
Speaker 1: pedigree academic pedigree of the authors, I thought it was

658
00:34:06,960 --> 00:34:09,200
Speaker 1: a terrible idea. I still think it's a terrible idea

659
00:34:09,200 --> 00:34:12,000
Speaker 1: and I probably will whatever. So that was that one,

660
00:34:12,360 --> 00:34:15,240
Speaker 1: and regulations that say stable coins have to be fully

661
00:34:15,239 --> 00:34:18,560
Speaker 1: backed makes that not be a problem. The second, which

662
00:34:18,640 --> 00:34:22,080
Speaker 1: was far worse, was from bad disclosures. And there's probably

663
00:34:22,120 --> 00:34:23,960
Speaker 1: the only point that I know of that Gary Genser

664
00:34:24,000 --> 00:34:26,560
Speaker 1: and I agree on completely, which is firms should have

665
00:34:26,560 --> 00:34:30,520
Speaker 1: to disclose their risks. Right. The third one, which was FTX,

666
00:34:31,120 --> 00:34:33,319
Speaker 1: was far more like made off than like anything else.

667
00:34:33,760 --> 00:34:37,520
Speaker 1: They simply gambled away somewhere between eight and ten billion

668
00:34:37,560 --> 00:34:39,759
Speaker 1: dollars and stole it from their customers. That an nothing

669
00:34:39,880 --> 00:34:42,120
Speaker 1: with crypto. They could just easily been doing sports betting,

670
00:34:42,560 --> 00:34:44,879
Speaker 1: doesn't matter. They lost a lot of money and stole it.

671
00:34:45,280 --> 00:34:48,920
Speaker 1: That's not a systemic risk from crypto. That's a massive theft.

672
00:34:49,640 --> 00:34:51,759
Speaker 1: So if you actually look at everything else, all the

673
00:34:51,800 --> 00:34:55,800
Speaker 1: other major volatile events in the history of bitcoin and

674
00:34:55,840 --> 00:34:58,800
Speaker 1: crypto has never really spilled over to the traditional financial

675
00:34:58,800 --> 00:35:03,360
Speaker 1: system because there really isn't a impact there. But so Dave,

676
00:35:03,560 --> 00:35:06,160
Speaker 1: twenty four hours ago, Okay, Caroline and I were having

677
00:35:06,160 --> 00:35:08,600
Speaker 1: this discussion that actually this is all the net result

678
00:35:08,600 --> 00:35:11,839
Speaker 1: of higher rates, and what higher rates have done, Caroline, right,

679
00:35:12,120 --> 00:35:15,120
Speaker 1: is cut froth out of the market. Where is the

680
00:35:15,160 --> 00:35:18,360
Speaker 1: most froth. Well, according to Bloomberg reporting, it was in

681
00:35:18,360 --> 00:35:21,840
Speaker 1: the cryptisector. Yeah, and ultimately that was what the demise

682
00:35:22,120 --> 00:35:24,759
Speaker 1: behind still the gate because people had to pull their deposits. Then,

683
00:35:25,040 --> 00:35:27,280
Speaker 1: of course the tech community needing to pull their deposits

684
00:35:27,320 --> 00:35:30,440
Speaker 1: to basically get through the cash burn and Dave, now

685
00:35:31,080 --> 00:35:34,120
Speaker 1: you were just mentioning stable coins. I'm interested as to

686
00:35:34,200 --> 00:35:37,600
Speaker 1: what happens if some of the key stable coin proponents,

687
00:35:37,600 --> 00:35:40,160
Speaker 1: some of the companies behind it have relationships for the

688
00:35:40,160 --> 00:35:43,319
Speaker 1: Silicon Valley Bank. That is a great question, and I

689
00:35:43,320 --> 00:35:46,040
Speaker 1: wish I knew the answer. I basically I don't know

690
00:35:46,160 --> 00:35:50,000
Speaker 1: Jeremy Lair from Circle. We perfectly blond about it. We've

691
00:35:50,040 --> 00:35:53,439
Speaker 1: never met. But if I were running Circle, I would

692
00:35:53,480 --> 00:35:56,840
Speaker 1: have had ninety eight percent of my deposits in T

693
00:35:57,040 --> 00:36:00,799
Speaker 1: bills and T notes. There's no reason to take to

694
00:36:00,840 --> 00:36:05,560
Speaker 1: have bank investments. You need banking for liquidity on the margin,

695
00:36:05,680 --> 00:36:08,080
Speaker 1: so it should be a very small amount. Now why

696
00:36:08,160 --> 00:36:10,480
Speaker 1: do I say that, It's because I'll tell you. At

697
00:36:10,520 --> 00:36:13,880
Speaker 1: coin routes, for example, we were offered bank savings accounts

698
00:36:14,320 --> 00:36:17,240
Speaker 1: and we compared that to three months and even thirty

699
00:36:17,320 --> 00:36:20,400
Speaker 1: day tea bills for our cash needs. And the reality

700
00:36:20,480 --> 00:36:24,440
Speaker 1: is you get multiple percent higher by investing in government debt,

701
00:36:24,480 --> 00:36:27,680
Speaker 1: which is obviously far safer than you do in banks.

702
00:36:28,080 --> 00:36:30,080
Speaker 1: So the real issue is if you look at bank

703
00:36:30,160 --> 00:36:32,760
Speaker 1: rate dot com, they'll tell you the average savings account

704
00:36:32,840 --> 00:36:35,680
Speaker 1: rate is point two five or point two three percent.

705
00:36:36,480 --> 00:36:38,839
Speaker 1: So one has to ask oneself the question, why are

706
00:36:38,840 --> 00:36:41,800
Speaker 1: people leaving money in bank deposits. That's a really, really

707
00:36:41,800 --> 00:36:43,719
Speaker 1: interesting question. I don't know the answer to that. I

708
00:36:43,719 --> 00:36:47,200
Speaker 1: can tell you at coin Routes, our treasury for our

709
00:36:47,360 --> 00:36:50,880
Speaker 1: three years plus of runway is setting either very large

710
00:36:50,920 --> 00:36:54,839
Speaker 1: banks or in treasuries just on the issue of such

711
00:36:54,920 --> 00:36:57,160
Speaker 1: or we will go to them and get comment and

712
00:36:57,280 --> 00:36:59,919
Speaker 1: best side of this story. I don't see yet any

713
00:37:00,040 --> 00:37:02,839
Speaker 1: commentary from them on the Bloomberg terminal today either way.

714
00:37:02,920 --> 00:37:07,040
Speaker 1: Corn Route CEO and co founder diet Dave Weisberger, thank

715
00:37:07,080 --> 00:37:10,400
Speaker 1: you very much. Now up next the implications on Silicon

716
00:37:10,560 --> 00:37:14,160
Speaker 1: Valley itself, the place, but also the tech sector as

717
00:37:14,160 --> 00:37:18,040
Speaker 1: a whole. Let's talk about all of that, not just

718
00:37:18,120 --> 00:37:20,880
Speaker 1: that view on your screen, but also the miles and

719
00:37:20,960 --> 00:37:24,960
Speaker 1: miles of companies, founders, bench capitalists behind it in the distance.

720
00:37:25,000 --> 00:37:27,160
Speaker 1: We'll bring all of you that. Next. This is Bloomberg.

721
00:37:35,640 --> 00:37:38,120
Speaker 1: Let's talk about how the Silicon Valley bank melt down

722
00:37:38,160 --> 00:37:42,440
Speaker 1: as impacted Silicon Valley believe it or not. You know,

723
00:37:42,480 --> 00:37:44,759
Speaker 1: we've not really talked about out West and all of

724
00:37:44,760 --> 00:37:47,640
Speaker 1: the companies here that are suffering as a consequence of

725
00:37:47,640 --> 00:37:50,160
Speaker 1: what's happened. I'm going to bring in Bloomberg Shnai Bassett,

726
00:37:50,200 --> 00:37:52,719
Speaker 1: who's been across the finance banking side of this all

727
00:37:52,800 --> 00:37:55,920
Speaker 1: day long, and also Bloomberg is exative editor Tom Giles,

728
00:37:55,920 --> 00:37:59,480
Speaker 1: who's been leading our coverage from the tech perspective. Tom,

729
00:37:59,480 --> 00:38:02,520
Speaker 1: I'll start with you. I mean, what we're learning increasingly

730
00:38:02,560 --> 00:38:06,120
Speaker 1: and rapidly is it's not just private companies, start ups

731
00:38:06,160 --> 00:38:10,279
Speaker 1: and founders with exposure here. They are publicly traded technology

732
00:38:10,320 --> 00:38:14,200
Speaker 1: companies with exposure to this company. This bank had its

733
00:38:14,239 --> 00:38:18,920
Speaker 1: tentacles across so many different industries, across so many different

734
00:38:19,160 --> 00:38:22,120
Speaker 1: types of businesses. It wasn't just startups as you said,

735
00:38:22,280 --> 00:38:24,480
Speaker 1: These are publicly traded companies that kept a lot of

736
00:38:24,520 --> 00:38:30,400
Speaker 1: their cash with SBB. And clearly, when you have twenty

737
00:38:30,400 --> 00:38:33,040
Speaker 1: six percent of your cash that's the case with Roku,

738
00:38:33,920 --> 00:38:37,000
Speaker 1: that goes well above what's ensured. And so this is

739
00:38:37,040 --> 00:38:40,840
Speaker 1: a company that's falling and late trading. They disposed in

740
00:38:40,920 --> 00:38:44,840
Speaker 1: a regulatory filing their shared are down six percent, twenty

741
00:38:44,840 --> 00:38:47,640
Speaker 1: six percent of their total cash was held with Silicon

742
00:38:47,719 --> 00:38:52,479
Speaker 1: Valley Bank. Rocket Laps is another one. Now we're also

743
00:38:52,480 --> 00:38:54,560
Speaker 1: seeing a lot of companies coming out and saying we

744
00:38:54,680 --> 00:38:57,799
Speaker 1: have no exposure or we have very minimal exposure. I

745
00:38:57,800 --> 00:39:00,839
Speaker 1: think that's something that these companies need to share with

746
00:39:00,920 --> 00:39:05,560
Speaker 1: their share holders who are concerned about exposure to a

747
00:39:05,600 --> 00:39:09,640
Speaker 1: bank that's just gone into receivers five hundred million thereabouts.

748
00:39:10,000 --> 00:39:13,200
Speaker 1: SVB has with roku of it's almost two billion dollars

749
00:39:13,200 --> 00:39:16,520
Speaker 1: in cash and cash equivalent. Shinali, what next push us

750
00:39:16,560 --> 00:39:18,560
Speaker 1: forward for what we hear from. Not only we wait

751
00:39:18,600 --> 00:39:21,320
Speaker 1: for the publicly traded companies and private ones to disclose

752
00:39:21,719 --> 00:39:25,240
Speaker 1: their exposure, but the FDIC in this process and indeed

753
00:39:25,239 --> 00:39:27,160
Speaker 1: the regulators. We've got a weekend to work this out.

754
00:39:27,680 --> 00:39:31,080
Speaker 1: We have a weekend in essence. Remember there's a question

755
00:39:31,200 --> 00:39:33,680
Speaker 1: here of whether they'll look to seek a buyer and

756
00:39:33,760 --> 00:39:36,760
Speaker 1: fuller a buyer for some of the assets. Remember Silicon

757
00:39:36,840 --> 00:39:39,839
Speaker 1: Valley Bank, there's been a lot of complications for any

758
00:39:39,840 --> 00:39:42,560
Speaker 1: potential buyer that's coming in. They would have wanted to buy,

759
00:39:42,560 --> 00:39:46,120
Speaker 1: the relationships they would have wanted to buy in all

760
00:39:46,160 --> 00:39:48,680
Speaker 1: of the think about how big some of these businesses

761
00:39:48,680 --> 00:39:52,000
Speaker 1: have gone investment banking, they had a large wealth client

762
00:39:52,040 --> 00:39:55,120
Speaker 1: base as well. These are attractive to a lot of

763
00:39:55,160 --> 00:39:58,359
Speaker 1: Wall Street. But with all of that said, you know,

764
00:39:58,480 --> 00:40:01,080
Speaker 1: what are the troubles that's still exists for the client base.

765
00:40:01,160 --> 00:40:03,400
Speaker 1: I think that is the first and most immediate concern.

766
00:40:03,440 --> 00:40:07,440
Speaker 1: No matter what, and especially if they do find buyers,

767
00:40:07,520 --> 00:40:10,920
Speaker 1: what happens to those asset bases in that event, especially

768
00:40:10,920 --> 00:40:12,799
Speaker 1: if not all of it is sold to some parts

769
00:40:12,840 --> 00:40:16,880
Speaker 1: get left behind. Tom on the technology side of this story,

770
00:40:17,120 --> 00:40:20,640
Speaker 1: where does this rank in all of the crises and

771
00:40:20,840 --> 00:40:23,399
Speaker 1: mega tech stories that we've covered in this newsroom over

772
00:40:23,440 --> 00:40:27,600
Speaker 1: the years. I mean, this really is up there. This

773
00:40:27,640 --> 00:40:32,799
Speaker 1: is stuff that that speaks to a very visceral, fundamental

774
00:40:33,400 --> 00:40:37,080
Speaker 1: fear that you have as a person, as a company,

775
00:40:37,160 --> 00:40:41,000
Speaker 1: as a business, and that is essentially where I'm putting

776
00:40:41,040 --> 00:40:44,040
Speaker 1: my assets you think that they're safe. This hints at

777
00:40:44,080 --> 00:40:48,600
Speaker 1: the fundamental fear for any business, which is my savings

778
00:40:48,760 --> 00:40:52,200
Speaker 1: are not safe. They're not They're not well be expected.

779
00:40:52,520 --> 00:40:55,040
Speaker 1: These You know, putting your money in a bank is

780
00:40:55,080 --> 00:40:58,080
Speaker 1: not supposed to be the speculative game. This isn't investing

781
00:40:58,120 --> 00:41:03,120
Speaker 1: in crypto, This isn't investing in securities. It's not even

782
00:41:03,120 --> 00:41:06,080
Speaker 1: investing in bonds. This is just keeping it in liquid

783
00:41:06,400 --> 00:41:10,279
Speaker 1: cash money market securities. So this really cuts at the

784
00:41:10,320 --> 00:41:14,239
Speaker 1: heart of the trust relationship that exists between a business. Yes,

785
00:41:15,719 --> 00:41:18,640
Speaker 1: and ultimately Tom and Shinali, this is why the White

786
00:41:18,680 --> 00:41:22,799
Speaker 1: House wigs in, why the Treasury Secretary weighs in, why

787
00:41:22,920 --> 00:41:25,320
Speaker 1: we all await what indeed the rest of the regulators

788
00:41:25,320 --> 00:41:26,680
Speaker 1: is going to say it over the course of the weekend,

789
00:41:26,680 --> 00:41:29,359
Speaker 1: Shinali Bassak, You're going to be busy. I think Tom

790
00:41:29,440 --> 00:41:31,440
Speaker 1: Giles too. We thank you both so much for your time,

791
00:41:31,480 --> 00:41:33,360
Speaker 1: and that doesn't for this addition of bloom Bow technology.

792
00:41:33,400 --> 00:41:36,080
Speaker 1: But ed, we've got some big moves to make. On Monday,

793
00:41:36,920 --> 00:41:39,960
Speaker 1: we're back, but we are relaunching. We're new newn easton

794
00:41:40,160 --> 00:41:43,120
Speaker 1: nine am Pacific with the new showtime Carrot where we

795
00:41:43,160 --> 00:41:45,280
Speaker 1: are going big and this as we go to break

796
00:41:45,280 --> 00:41:47,480
Speaker 1: with one of the biggest stories, at least in my career,

797
00:41:47,480 --> 00:41:49,560
Speaker 1: in your career. This is Bloomberg