Speaker 1: From Mark hard Of. We're Innovation, Money, Empower Collie in
Speaker 1: Silicon Valley, NBR. This is Bloomberg Technology with Caroline Hide
Speaker 1: and Ed Ludlow. I'm Caroline Hide a Bloomberg's World headquarters
Speaker 1: in New York, and I'm a Ludlow in San Francisco.
Speaker 1: This is Bloomberg Technology, A new time, a new era
Speaker 1: for this show. Caroline, the news continues US technology a
Speaker 1: sigh of relief as the US backstops depositors, but we
Speaker 1: are very worried about ongoing risk, the contagion risk. This
Speaker 1: is a new era for our show. It is a
Speaker 1: new era for technology, the startups, the VCS writ large
Speaker 1: as we see potentially the ongoing spiraling. Let's keep talking
Speaker 1: about what's coming up in the next hour. Ed. How
Speaker 1: Silicon Valley spawned a bank crisis, the impact on startups, investors,
Speaker 1: regulators in the lenders, all fighting for their reputations. President
Speaker 1: Biden vows to hold banks responsible, urging Congress for tougher
Speaker 1: regulation on the banking industry, and the UK arm of
Speaker 1: SVV gets bought for one pound. We bring you the
Speaker 1: sprawling global gyrations from London to Beijing to Mumbai. But
Speaker 1: first let's check in on those markets that yes ed
Speaker 1: bread the cyber relief in the United States, but not
Speaker 1: so worldwide. We are still worried about the contagium risk.
Speaker 1: When you're looking in the equity front foot see one
Speaker 1: hundred off by more than two percentage points. The eurostops
Speaker 1: off by more than two percent, and we are seeing
Speaker 1: the US though spring back as we start to think
Speaker 1: maybe the Federal Reserve will have to pause its hiking cycle.
Speaker 1: We therefore see the dollar wiping out all of its
Speaker 1: gains for the year. We see dollar indext off by
Speaker 1: eight tenths of a percent. I'm looking at sovereign bonds,
Speaker 1: the bid, the flight to safety, and the unraveling of
Speaker 1: where we thought interest rates were going to go. A
Speaker 1: two year yield on the US down thirty eight basis points,
Speaker 1: the most we've seen since the nineteen eighties in terms
Speaker 1: of a move. Let's overall have a look at what's
Speaker 1: happening in the world of crypto. We've got to look
Speaker 1: at the key asset. Then it's just absolutely having a
Speaker 1: field day, up twelve and a half percent. But remember
Speaker 1: the pain trade that we saw back on Friday. The
Speaker 1: warriors around crypto and indeed, this is a story of
Speaker 1: dollar weakness too. Yeah, individual movers, We've actually turned a
Speaker 1: big corner. These are the names most exposed to SVP
Speaker 1: in terms of the deposities in publicly traded tech companies,
Speaker 1: market Blower at the Open. We have turned a corner.
Speaker 1: There's this narrative around one and done with the FED,
Speaker 1: which is really boosting the tech sector along with dip buying.
Speaker 1: Number of these names turning the corner change the board though.
Speaker 1: Let's go straight to the banks. There is contagion concern.
Speaker 1: A number of regional banks have been halted. We are
Speaker 1: seeing record declines across First Republic for example, Western Alliance
Speaker 1: also down very big. How much of the concern around
Speaker 1: SVP and deposit of flight still applies to these names
Speaker 1: as the regulators assess the health of this industry. For
Speaker 1: the latest bringing Bloombog Shinnali Bassak, who's on top of
Speaker 1: this story for US, Shinali, what is the latest with
Speaker 1: this sector? There's a few things to think about here,
Speaker 1: Ed And if you think about it, how many people
Speaker 1: in Silicon Valley had banked with the likes of Silicon
Speaker 1: Valley Bank and then move their money to say First Republic,
Speaker 1: and then they're worried also about the other regional banks
Speaker 1: in the sector. Western Alliance based in Phoenix, Arizona, PacWest
Speaker 1: based in Los Angeles. There's a general worries about their
Speaker 1: banks close to home, especially after some money has moved
Speaker 1: there very very recently. I would also say that there
Speaker 1: are other people who see this as an opportunity to
Speaker 1: attract more clients. I would take a look at this
Speaker 1: tweet over the weekend from Anthony Nodo who had said
Speaker 1: use his link to sign up and you'll get a
Speaker 1: twenty five dollars bonus and up to two hundred fifty
Speaker 1: two hundred fifty dollars when you sign up for a
Speaker 1: direct deposit. So we're going to talk a lot more.
Speaker 1: I know about the companies here that even in the
Speaker 1: sell off, are coming to seek a position of strength
Speaker 1: versus the ones that maybe have a little further to
Speaker 1: go here when it comes to the troubles facing the
Speaker 1: banking sector, well said Shenatibaut site, you're gonna be sticking
Speaker 1: with us and piece to say this odd fintype. Ponton
Speaker 1: has found a CEO in Managing Pontus, Steve McLoughlin. He's
Speaker 1: with us. He's a full my head of Goldman's Global
Speaker 1: Financial Technology Group, joining us for the conversation. And wow,
Speaker 1: I mean Steve told to us before we get onto
Speaker 1: the silver linings of who benefits in this scenario, just
Speaker 1: talk to us about how much the earth shook for
Speaker 1: VC's tech. The overall counterparty risk was enormous, and no
Speaker 1: one seemed to realize. Yeah. I think this sudden element
Speaker 1: of this is what hit everybody so so hard. And
Speaker 1: I think I don't know how many years of life
Speaker 1: were taken off everyone over the weekend, but there were
Speaker 1: people super, super stressed out, you know, getting from not
Speaker 1: just big businesses but SMBs and clients of the firm,
Speaker 1: not our firm, but SVB. But it really, I think
Speaker 1: woke people up to the big problem you know out
Speaker 1: there that there's so much risk on a few big
Speaker 1: banks in Silicon Valley that it really, it really just
Speaker 1: shook everybody out. And at the end of the day,
Speaker 1: I think you're seeing the ripple effects happen and you're
Speaker 1: right in the middle of it. So I think the
Speaker 1: probably questions are going to be, you know, how deep
Speaker 1: is this going to go? But we're still in the
Speaker 1: middle of it. We're still in the middle of it,
Speaker 1: and the reality is you have spent so many years
Speaker 1: here helping firms become unicorns through raising money, you work
Speaker 1: with their venture capitalists. Is there a sense that the
Speaker 1: capital markets are now closing up for the people who
Speaker 1: had such easy access to money for the last ten years. Well,
Speaker 1: I wouldn't say they're closing up, but I would say
Speaker 1: this isn't helpful, and given that we're right in the
Speaker 1: middle of it, it's it's pretty painful for I think
Speaker 1: a lot of tech companies across the world. I think
Speaker 1: the fact that FED came out and did what they
Speaker 1: did was incredibly helpful and expected to some extent over
Speaker 1: the weekend. But capital was pretty hard to find before this,
Speaker 1: and so right now we're getting hundreds of calls from
Speaker 1: companies looking for whether it's credit. I saw ban On
Speaker 1: this morning of talking about credit funds and structured securities
Speaker 1: and all that. But you see some of the big
Speaker 1: guys that wrote all the checks leading up to the
Speaker 1: big boom in tech and fintech, you know, Tiger d
Speaker 1: One Code to really kind of pulling back on their
Speaker 1: private investments and looking at their portfolio companies or shifting
Speaker 1: to public markets. Steve, you run an advisory. This at
Speaker 1: the hault of all these transactions. Right when the Vene
Speaker 1: Caitlists wrote that letter of support for SVB, they pointed
Speaker 1: out that it's not just a place that holds deposits
Speaker 1: for this sector. It offers a wide range of banking
Speaker 1: sets is where no one else would. So, now where
Speaker 1: does this industry turn to? Where did the founders go
Speaker 1: when they need banking services and traditional banks don't offer them? Yeah,
Speaker 1: you're right. It was not just a place where you
Speaker 1: storage your money. It was where all the money got transferred.
Speaker 1: They were doing payments, they were doing treasury management, they
Speaker 1: were doing wealth management, investment banking, you name it. And
Speaker 1: a lot of companies were essentially running their business off
Speaker 1: of SVB, not just essentially putting their deposits there. You know,
Speaker 1: I think, you know, it's interesting to hear so far
Speaker 1: and other FinTechs who we know are are you know,
Speaker 1: have their hands out to essentially take deposits and help
Speaker 1: people out. But that's just one smallest liver. The economy
Speaker 1: in the fintech universe is extremely strong, and I think
Speaker 1: there's going to be places for people to go. We
Speaker 1: were on the phone all week on ourselves and with
Speaker 1: different clients helping them get open up accounts at Cheaping
Speaker 1: Morgan and other large banks institutions, And that was happening
Speaker 1: all weekend. And I have to say, and talking to
Speaker 1: some of the bankers that were taking those funds in
Speaker 1: that a lot of them were extremely gracious about about
Speaker 1: the situation and not trying to sort of fearmonger on it.
Speaker 1: So a lot of support around the banking system for
Speaker 1: each other, from systemically important institutions such as JP Morgan,
Speaker 1: such a Bank America. But what about Mercury bres Capital,
Speaker 1: what about some of the neo banks? How much should
Speaker 1: we go to see these companies supported with inrow, in
Speaker 1: flux of cash, or more warries around them. I think
Speaker 1: the good news is the bigger and better of those
Speaker 1: firms raised so much capital over the last couple of years,
Speaker 1: companies like Revolute in Europe raised a billion to fifty
Speaker 1: from US for example, and are growing like a weed
Speaker 1: and making lots of money. So some of these banks
Speaker 1: are very well healed and don't actually have risky assets
Speaker 1: on our balance sheet like some of the larger banks.
Speaker 1: So in a weird way, some of the largest banks
Speaker 1: of the country more risky than some of the neo
Speaker 1: bank So we're very bullish on all things or most
Speaker 1: things fintech, I would say, but I think this is
Speaker 1: a great opportunity for fintech to shine. I'm so interested
Speaker 1: though you mentioned kind of helping your clients move money
Speaker 1: into places like JP Morgan. There was a lot of
Speaker 1: chatter online, especially with the VC community, about this idea
Speaker 1: that you're systemically important and then you're everybody else, And
Speaker 1: I'm wondering has the psychology change now that the FED
Speaker 1: has stepped in, that the FDIC has stepped in the
Speaker 1: way they did and said you're safe no matter what
Speaker 1: it Does that mean that there will still be an
Speaker 1: embracing of these regional banking partners or is there still
Speaker 1: that fear given what we've seen it to a con
Speaker 1: valley bank. I mean, there's been a twenty year trend
Speaker 1: towards bank mergers and lesser and lesser banks in the country,
Speaker 1: and that's how I sort of built my career up
Speaker 1: of Coleman Sacks doing a lot of bank mergers. But
Speaker 1: I would say, I don't think we're going to move
Speaker 1: to a system like Canada where there's like six major
Speaker 1: banks and then nothing else. I think it could be
Speaker 1: a slow movement towards that, because I don't think you
Speaker 1: really necessarily need as many banks as we have. But
Speaker 1: I also think there's a huge place for the fintech
Speaker 1: institutions that are coming onto the scene and solving some
Speaker 1: of these problems and using some of the very largest banks.
Speaker 1: So they got a layer on top of the largest banks.
Speaker 1: You can have the best of both worlds. Steve Owner
Speaker 1: brings some breaking news just crossing the Bloomberg terminal. Bloomberg
Speaker 1: is reporting, citing officials familiar of the matter, the European
Speaker 1: Central banks plans for big interest rate hikes in the
Speaker 1: weeks succume are going to meet more opposition now right
Speaker 1: Dubbish policymakers are likely to make the point that because
Speaker 1: of what's happened with Silicon Valley Bank, the economic picture
Speaker 1: has shifted, not just here in North America but in
Speaker 1: Europe as well, similar to what we're seeing in the
Speaker 1: market reflecting in terms of their bets on the FED.
Speaker 1: How much has the economic picture shifted into your mind
Speaker 1: as a result of what's happened in the past five days.
Speaker 1: I think the biggest thing is people are realizing that
Speaker 1: the blunt instrument of just increasing interest rates isn't always
Speaker 1: good for for the overall macro economy, right, So it's
Speaker 1: it's great for certain elements of the world, and it's
Speaker 1: helpful for inflation, but it also has its ripple effects.
Speaker 1: So and it's hitting it's hitting Europe just as much
Speaker 1: as it is here. You know, at least they got
Speaker 1: sold for a dollar. We can't even get SVB sold
Speaker 1: in the US for anything, So that's which is a shame.
Speaker 1: So I think the ripple effects are are are happening,
Speaker 1: and they're I think, like I said, we're right in
Speaker 1: the middle of it. There could be more issues. I
Speaker 1: want to switch gears a little bit because to folks
Speaker 1: that are trading every day in the market, maybe they're
Speaker 1: not always focused on crypto. But for the crypto community,
Speaker 1: they had three banks that were friendly to them just
Speaker 1: evaporate within five days essentially, So I'm wondering what that means.
Speaker 1: There's this concern that the access to the financial system
Speaker 1: has been cut off for the crypto community. If you're
Speaker 1: seeing Bitcoin up quite meaningfully, what's going on? Yeah, I
Speaker 1: find it, you know, quite interesting to see that. You know,
Speaker 1: most of the tech IPOs are down fifty to sixty percent,
Speaker 1: and bitcoin was down way less than that. Now it's
Speaker 1: back up. Whereas these stocks continue to fall, crypto and
Speaker 1: bitcoin are going up, so you know, a long lived
Speaker 1: crypto and at the end of the day, blockchain's here
Speaker 1: to stay. I do think that the SEC and the
Speaker 1: government does appear to be having a very very negative
Speaker 1: crackdown on crypto in the US and globally, and so
Speaker 1: you know, the knockdown of some of these institutions curlely
Speaker 1: is not helpful, and so they're really forcing a lot
Speaker 1: of this activity to go offshore. We have a lot
Speaker 1: of clients in blockchain crypto and a lot of them
Speaker 1: are offshore from day one, and they're seeking banking partners offshore.
Speaker 1: We're looking at interest in Swiss banks, in Middle Eastern
Speaker 1: banks at the moment, because there are the silver gates,
Speaker 1: the signatures, the svbs. Anymore. In the US, ultimately, was
Speaker 1: there a question really about stable coins here too? We
Speaker 1: saw the tumult surrounding USDC, a DeFi that had to
Speaker 1: rely on trad fi ultimately, because that's why Circle had
Speaker 1: parked a lot of its money it's collateral. Yeah. I
Speaker 1: think there's tremendous value in Circle and USCC and in
Speaker 1: some of the stable coin you know operations, which is
Speaker 1: why we're such a big fan of it. But I
Speaker 1: think at the end of the day, these institutions should
Speaker 1: be diversifying that risk dramatically. Right to put you know,
Speaker 1: so much of it in one place here, may i'd
Speaker 1: be the best idea. I think, thank god it got
Speaker 1: it got rescued by the government, but it definitely put
Speaker 1: it scare into people and broke the USDC buck, if
Speaker 1: you will. But yeah, all right, fin Take Partners found
Speaker 1: a CEO and managing partner Steve mccaughlin and Bloomberg Snary Basset.
Speaker 1: Of course, thank you. Americans can rest assured that our
Speaker 1: banking system is saved, your depositors saying, let me also
Speaker 1: assure you we will not stop at this, will do
Speaker 1: whatever is needed. I'm going to ask Congress and the
Speaker 1: banking regulators to strengthen the rules for banks to make
Speaker 1: it less likely this kind of bank failure would happen again,
Speaker 1: and to protect American jobs and small businesses. Some of
Speaker 1: President Biden earlier this morning. For more on the government response,
Speaker 1: Bloomberg's Jordan Fabian joins us from the DC ber Jordan Howard.
Speaker 1: The White House framing this one well, and they're framing
Speaker 1: this as an opportunity for President Biden to push for
Speaker 1: new new regulations on banks, basically framing it as you know,
Speaker 1: management mismanagement at those at those banks, sub and signature
Speaker 1: and what's needed is new regulation act. He pointed to
Speaker 1: a Republican efforts that were successful to roll back some
Speaker 1: requirements under the Dad Frank Law that he wants to
Speaker 1: see basically return and reimplemented. That's going to be difficult
Speaker 1: for him to accomplish, but that's a challenge he set
Speaker 1: for himself and his administration. Right Laer today and Caro,
Speaker 1: I've been seeing this word on Twitter, bailout or no bailout?
Speaker 1: How do you frame it? You know, that's really a
Speaker 1: question in the market this morning. And I don't know
Speaker 1: about you, Ed, but I was listening to countless podcasts
Speaker 1: on the phone with many of people, and there was
Speaker 1: this worry that how are you going to frame a
Speaker 1: bailout of what seems to be billionaires Silicon Valley in
Speaker 1: the world of Silicon Valley Bank. Jordan to that end.
Speaker 1: How much has we seen from the administration, from regulators,
Speaker 1: this desire to not frame it of a bailout of investors,
Speaker 1: but of course just of depositors. That was a huge desire.
Speaker 1: That was a central part of the President's message in
Speaker 1: his speech this morning. He said taxpayers aren't paying for this.
Speaker 1: I mean, we could debate the semantics of that, but
Speaker 1: he was sure to stress that and that the management
Speaker 1: of these banks are going to be hired. So really
Speaker 1: it's sort of a populous message, if you will, saying, look,
Speaker 1: the little guy is not going to pay for this.
Speaker 1: Management is going to be held accountable. And with these
Speaker 1: emergency steps that regulators took over the weekend, that small
Speaker 1: businesses and depositors are going to be able to access
Speaker 1: their money. The President going into Congress on big banking regulation,
Speaker 1: how do you package that up? It's going to be
Speaker 1: a tough challenge ed. There are houses, of course controlled
Speaker 1: by Republicans, many of the same Republicans who voted in
Speaker 1: twenty eighteen to exempt small and mid sized banks from
Speaker 1: things like capital requirements, lending restrictions that were in that
Speaker 1: Dodd Frank law. So asking them to again to basically
Speaker 1: go back on what they just did five years ago.
Speaker 1: It's going to be a tough challenge. Now he can
Speaker 1: see what he can do through executive order executive action,
Speaker 1: but he might be limited there, and that also leaves
Speaker 1: him vulnerable to legal challenges to anything he does on
Speaker 1: his own. What I think to add to the sort
Speaker 1: of extraordinary nature of all of this the seizing of
Speaker 1: Signature Bank over the course of the weekend and the
Speaker 1: sort of support there that many would say took the
Speaker 1: management itself the board by surprise. Notably, on the board
Speaker 1: of that very bank is none other than one of
Speaker 1: the people who helped co write Dodd Frank Barney Frank
Speaker 1: himself speaking to Bloomberg a little bit earlier, Jordan, I think, ultimately,
Speaker 1: when we're thinking about new regulation, are we really thinking
Speaker 1: about the counterparty risk as well? Where was the administration
Speaker 1: taken off, god by how much one particular sector depended
Speaker 1: on one particular set of banks. I think that's something
Speaker 1: that was surprising to a lot of people. I don't
Speaker 1: know that the administration really saw this coming, given the
Speaker 1: fact that they had to scramble over the weekend to
Speaker 1: have muster or response here. Their administration has talked about
Speaker 1: a lot about the economy's resilience overall. So I don't
Speaker 1: think I don't think they anticipated that this particular problem
Speaker 1: would become such a major problem, facing or prompting questions
Speaker 1: about your contasian risks, etc. And so that's something they're
Speaker 1: now going to have to look at, especially to your
Speaker 1: policymakers thinking about rad hikes as well. Well, said Jordan
Speaker 1: Fabian from Limburgh. We thank you so much and ed
Speaker 1: so many people saying, look, when you raise rates, things break.
Speaker 1: We think about the UK pension situation but a few
Speaker 1: months ago and the impact there. But of course this
Speaker 1: whole scenario around Silicon Valley Bank swooped up the UK, China, India, others,
Speaker 1: the global startups in the concern because this was a
Speaker 1: bank that bank too many And we're going to talk
Speaker 1: about that just next hey, because we will talk about
Speaker 1: how this affects not just DC but London, the regulators
Speaker 1: far and wide. And I think ultimately I don't want
Speaker 1: to get your point of view when you're contributing, when
Speaker 1: you're bringing us your analysis and you're reporting, you're out
Speaker 1: there on our Tea live blog yourself helping push this
Speaker 1: conversation forward. I'm looking at the Tea Live blog. Now,
Speaker 1: if you're lucky enough to have a terminal talking about
Speaker 1: what the implications to the ECB, I think that the
Speaker 1: narrative is now the conversation. The economic economic picture is shifted,
Speaker 1: not just here in the United States but in Europe.
Speaker 1: India is a name that I keep hearing about on
Speaker 1: all of the text messages I'm getting. Startups face a
Speaker 1: lot of hardship right now. We've got to get into it.
Speaker 1: This is bloom bog. There is a serious risk to
Speaker 1: some of our most promising companies and technology, life sciences.
Speaker 1: You're going to have to wait and hear what the
Speaker 1: solution is. But that risk is precisely why the Prime
Speaker 1: Minister and I have been working at pace over the
Speaker 1: weekend to make sure that we have a solution. These
Speaker 1: are very very important companies to the UK, have very
Speaker 1: very important part of our future. The UK Chancellor, they're
Speaker 1: Jeremy Hunt on the SVB situation across the pond, after
Speaker 1: HSBC of course plans to buy the UK arm of
Speaker 1: Silicon Valley Bank for one pound Blue merged. Jenny sin
Speaker 1: Is in London with more and many would say this
Speaker 1: is what a drop in the bucket for HSBC, What
Speaker 1: do they win out of this? Yeah, I mean I
Speaker 1: think the big thing is just greater exposure to tech
Speaker 1: companies and having a bigger scale with that industry. And
Speaker 1: of course, as you pointed out, the price wasn't bad.
Speaker 1: They really did get its first deal. I think it's
Speaker 1: really important to remember with this collapse of SVB that
Speaker 1: it really was on the asset liability management front. It
Speaker 1: was not a credit crisis, so they weren't seeing some
Speaker 1: huge uptick and customers going bad. It was really just
Speaker 1: a you know, a failure and risk management on the
Speaker 1: asset liability side. Size and scale is kind of important here, right, Jenny,
Speaker 1: I was reading over the weekend. You know, by the
Speaker 1: end of the financial year, Silicon Valley Bank UK had
Speaker 1: eleven billion dollars of deposits on its balance sheet. Lloyd's,
Speaker 1: by comparison, has four hundred and fifty billion dollars. But
Speaker 1: what were the problems experience in UK specifically? We know
Speaker 1: all about depositors here in the US, all about the
Speaker 1: pain for founders and vcs. How did things play out
Speaker 1: over in London. I mean, I think there were a
Speaker 1: lot of fears here as well. It's hard to kind
Speaker 1: of separate if you're a customer of one of these banks,
Speaker 1: you know, it's it's I think a lot of the
Speaker 1: past few days has been just characterized by a lot
Speaker 1: of panic and fear and worries by both investors and
Speaker 1: customers alike. And so I think you experienced a lot
Speaker 1: of the same things. And it'll be interesting now as
Speaker 1: you know, HSBC acquires this this unit of the bank,
Speaker 1: and then you know, obviously FDIC continues with its work
Speaker 1: in the US, how those things kind of shake out
Speaker 1: and how things turn out today and proceed from here.
Speaker 1: I think we're hearing very vastly different experiences among different customers.
Speaker 1: You know, some are proceeding apace and having no problems.
Speaker 1: Others can't seem to log in. So I think it's
Speaker 1: just a mixed bag at this point, and we're still
Speaker 1: really waiting to see where things shake out to that end.
Speaker 1: You of course based in London at the moment, Jenny,
Speaker 1: but you are our fintech reporter extraordinaire and someone who
Speaker 1: can lay climb across the entire banking sector a little
Speaker 1: bit for us. Just talk to us about what happens
Speaker 1: ultimately with some of the we wait for people to
Speaker 1: be able to log into Silicon Valley Bank. But SVB
Speaker 1: and its parent company, they're trying to auction off a
Speaker 1: lot of other assets, right There's securities parts of the business,
Speaker 1: wealth management parts of the business. How do you see
Speaker 1: that will unfolding. Yeah, So they just announced today that
Speaker 1: they formed a special committee on their board and that
Speaker 1: that committee will be in charge of that process. They're
Speaker 1: exploring options for both the securities business, which is the
Speaker 1: investment bank, as well as the SPB capital business, which
Speaker 1: is the VC and private equity fund platform, and so
Speaker 1: both of those. You know, we're completely separate from Silicon
Speaker 1: Valley Bank that you know obviously collapsed into FDIC receivership
Speaker 1: last week, So they're in very different places, and it'll
Speaker 1: be interesting to see what kind of bids this company
Speaker 1: might attract for those assets. But just in general, I think,
Speaker 1: you know, obviously for the broader fintech community, this was
Speaker 1: a huge shock to be reliant on one play for
Speaker 1: so so long, and there will probably be a lot
Speaker 1: of questions about that concentration risk, not just among banks,
Speaker 1: but from the fintech customers themselves. Bloomberg's Jenny's rain Out
Speaker 1: of London. Thank you so much for your reporting. Welcome
Speaker 1: back to Bloomberg Technology. I'm Caroline Hyde in New York
Speaker 1: and let's get back to Silicon Valley Bank. Of course,
Speaker 1: let's bring in, in fact, the co founder of the
Speaker 1: largest Latin X community in venture VC familiar Cheryl Campos
Speaker 1: is with us, who took to Twitter to say, the
Speaker 1: one thing this SVB run taught me is that most
Speaker 1: vcs know nothing about finance. Cheryl, what do you exactly mean,
Speaker 1: what does this sort of critique of your own industry
Speaker 1: meant to be talking about? Well, thank you so much
Speaker 1: for having me, And this tweet took off because there
Speaker 1: was in fact an element of truth to it. This
Speaker 1: was partially a finance problem, but at the same time
Speaker 1: so human behavior problem. This was a classic example of
Speaker 1: the prisoner's lamma and everyone really acting individualistically versus collectively.
Speaker 1: When the venture ecosystem and so Silicon Valley Bank, quite frankly,
Speaker 1: was the partner of a lot of different players here.
Speaker 1: They were the first check in and a lot of
Speaker 1: different initiatives. They were the first bank account of many founders.
Speaker 1: They also took things personally as well. They built deep
Speaker 1: relationships with people even giving out personal loans, mortgages, lines
Speaker 1: of credit for GP commits, and so that is something
Speaker 1: that I think that the ecosystem as a whole, if
Speaker 1: we had worked together, are going to be in severe
Speaker 1: crisis right now because there's going to be a significant
Speaker 1: gap in the market in terms of both access to
Speaker 1: capital and leadership. And so that is what communities like
Speaker 1: ours a BC Familia are trying to do. Let's talk
Speaker 1: about your community, because I believe when I look on
Speaker 1: leaf Amilia's website, it was partners like Silicon Valley Bank
Speaker 1: that helped fund you to out continue to drive the pipeline,
Speaker 1: the conversation, the network. What do you do when Silicon
Speaker 1: Valley Bank has to pull back and of course disappears
Speaker 1: in terms of a player an infrastructure. Silicon Valley Bank
Speaker 1: was our founding sponsor. They were the ones that gave
Speaker 1: us our first track when we were just at the
Speaker 1: idea stage because they were the person to take on
Speaker 1: the most risk when it comes to funding things at
Speaker 1: the idea stage, and so they really took a chance
Speaker 1: to make the ecosystem better as a whole, and so
Speaker 1: we really wanted to partner with a bank that was
Speaker 1: a mission aligned. They saw the vision, they saw what
Speaker 1: we were trying to create, and that's what we do.
Speaker 1: We took and use their support in order to build pipelines. Right,
Speaker 1: we were helping everyone break into venture and also build
Speaker 1: their own startups. We helped them as well with the
Speaker 1: professional development and rising up the ranks. And last one
Speaker 1: not least, we actually helped them raise capital for their
Speaker 1: own funds. And so that I think is one of
Speaker 1: the key things that will be missing right is first
Speaker 1: check in that will allow people to take these initiatives
Speaker 1: and make the ecosystem better. And so, yes, we were
Speaker 1: exposed as maybe because we were their banking partner, and
Speaker 1: I think that's something that I as an investor as
Speaker 1: a founder, was also really connisaated of because I have
Speaker 1: twenty portfolio companies, I have other founders that are reaching
Speaker 1: out to me, and so both as a founder as
Speaker 1: an investor, I can clearly support using my own personal
Speaker 1: experience as well as the community as a whole. Cheryl
Speaker 1: talked me about the last forty eight hours, including this morning.
Speaker 1: Silicon Valley Bank has technically opened its doors in the
Speaker 1: last thirty minutes here in California. What have you had
Speaker 1: to do to help founders make payroll. Have you had
Speaker 1: to move money around, have you had to make deals
Speaker 1: with co investing partners and other vcs. So I mean
Speaker 1: we all had a collective side relief yesterday right when
Speaker 1: we saw that the government was going to step in
Speaker 1: there and make sure that deposits were whole. So we did.
Speaker 1: Our money is safe, right, But the loss really is
Speaker 1: around losing Silicon Valley Bank as a partner, as a
Speaker 1: leader in this space. And so I think that that
Speaker 1: has allowed for founders and including communities like ourselves, really
Speaker 1: go back to the basics, right of our strategy, making
Speaker 1: sure that you know when times are tough, these are
Speaker 1: times where you know what people are made out of.
Speaker 1: And so going back to the fundamental supporting people with
Speaker 1: their payroll, supporting people with their strategies, and bringing scaling
Speaker 1: things a little bit back to figure out how other
Speaker 1: things play out. We see this morning that first Republic
Speaker 1: and others potentially are risk and so rocky times are
Speaker 1: far from over. But I've seen this before. I was
Speaker 1: an executive of Republic, which is a startup that threat
Speaker 1: unit current status, and I had my fair share of
Speaker 1: rocky times through COVID, through Royd fluid. And so the
Speaker 1: biggest lesson that we can learn here is that when
Speaker 1: there's times of chaos as times of opportunity, And so
Speaker 1: by going back to basics, I'm understanding how where your
Speaker 1: position is right now, you're able to then take advantage
Speaker 1: of these chances. If you go back to see days
Speaker 1: before Silicon Valley Bank tried to issue shares and raise
Speaker 1: more money before we knew what had happened, it seems
Speaker 1: like times are really hard for startups anyway. Yeah, it's
Speaker 1: the last five days actually just mask what is a
Speaker 1: much bigger ongoing problem cash fun and a lack of
Speaker 1: access to capital. I don't think anybody saw this coming
Speaker 1: right before, you know, Wednesday, we're on Thursday, and I
Speaker 1: think that was something where we saw a lot of
Speaker 1: founders are going to get hit by this negatively. But
Speaker 1: I'd like to also sate that diverse founders in particular
Speaker 1: weren't even getting access to capital in the first place
Speaker 1: when capital was good and times we were flush. Right.
Speaker 1: We actually showed a statement last year with a couple
Speaker 1: other Latin organizations because even though it was the largest
Speaker 1: venture capital funding a year to day, latinos only got
Speaker 1: one point two percent of all of that, and so
Speaker 1: that is where we see that even when times are good,
Speaker 1: we're not getting enough money and then diverse founders in
Speaker 1: particular will continue to have less access the capital, and
Speaker 1: so that's where that access and leadership that as to
Speaker 1: be played and this ecosystem will be missed. And that's
Speaker 1: why we're banding together with Ray's Black VC, Gold House
Speaker 1: and a couple other communities as well to show united front.
Speaker 1: Our motto is la us at the Foresight, which means
Speaker 1: strength and unity, and so we really want to make
Speaker 1: sure that we're there for our communities. Thank you for
Speaker 1: coming on the show and sharing that message with us.
Speaker 1: VC familiar founder and investor Cheryl Campos, thank you. Now
Speaker 1: coming up, we'll hear from vcs who banded together in
Speaker 1: support of Silicon Valley Bank. General catalyst CEO him On
Speaker 1: Tenada joins us next for more In that discussion, Caroline
Speaker 1: and the point also ed about Silicon Valley Bank. Many
Speaker 1: were worried about, of course, relationships not just private companies still,
Speaker 1: but those that did go public they remain very intertwined
Speaker 1: in terms of their banking relationships. And we got that
Speaker 1: feeding of the information as we went after the bell
Speaker 1: on Friday. I look at Roku now down seven tenths
Speaker 1: of percent. It had more than five hundred almost five
Speaker 1: hundred million dollars of cash with Silicon Valley Bank. It
Speaker 1: now has access. Of course, we're seeing Roku just down
Speaker 1: that little bit. Look at what happens with Roadbrocks five
Speaker 1: percent of its cash Mysilican Valley Bank, ties of Rocket
Speaker 1: Labs as well as under pressure today. Look at the
Speaker 1: bounce back in one particularly Canadian company, an ad tech company.
Speaker 1: They said it had ninety percent of its cache the
Speaker 1: Silicon Valley Bank. That's all. Let's get more on the
Speaker 1: VC community in a moment as a bring back. It's
Speaker 1: been incredible chaos. So my phone has been blowing up.
Speaker 1: The people that are going to be the most effected
Speaker 1: here are early in mid stage companies, more so than
Speaker 1: late stage companies. Venture capitalists like to run around saying
Speaker 1: they provide value. Well, this is the time to provide
Speaker 1: value to your portfolio companies. Long term events like this
Speaker 1: are massively bullish for the crypto complex, and the San
Speaker 1: Francisco FED should have been on top of what was
Speaker 1: going on. The bank's explosive growth and now it's very
Speaker 1: quick failure. That was some of our guest reaction to
Speaker 1: the SVB fallout as it was in raveling late last week.
Speaker 1: Let's get the take of another VC, and not just
Speaker 1: any VC, actually general catalysts, which led hundreds of VC
Speaker 1: firms to band together over the weekend in support a
Speaker 1: Silicon Valley Bank. CEO On Teenager joins us, Now, I
Speaker 1: think I'm right in saying they're in our six hundred signatories,
Speaker 1: over six hundreds to your effort, you still want to
Speaker 1: do business with whatever Silicon Valley Bank ends up being.
Speaker 1: What are you hearing about? How likely that is? Absolutely?
Speaker 1: I think it's really important that Silicon Valley and this
Speaker 1: next incarnation does continue to survive and thrive. What there
Speaker 1: are conversations being had with some banks, obviously, it's it's
Speaker 1: unclear if there's a deal that has been media. There
Speaker 1: are some private investors that are looking at potentially investing
Speaker 1: in the bank and recapitalizing as well, and I really
Speaker 1: hope a deal comes to together so the bank can
Speaker 1: be a going concern. I know in the conversations I've
Speaker 1: had there are signatories to your letter, people backing your
Speaker 1: initiative to keep Silicon Valley Bank Alive do business a bit,
Speaker 1: but who were also telling port failure companies to pull
Speaker 1: money for whatever reason. How do you Yeah, So look
Speaker 1: Thursday morning, when the news got out that the bank
Speaker 1: might be at risk, every investor was getting contacted by
Speaker 1: their fund or what to do, and your fiducial responsibilities
Speaker 1: to say, yeah, even though the bank the risk is
Speaker 1: low that the bank would go under, probably safe to
Speaker 1: pull money out. When we started hearing that multiple times,
Speaker 1: when you convened the leaders of some of the larger
Speaker 1: eventual firms to say, hey, this is a prisoner's dilemma
Speaker 1: situation where on our own everybody's going to give the
Speaker 1: same guidance. But that's not the right thing for the
Speaker 1: collective because while some starts may be able to take
Speaker 1: their money out, others will be left and the bank
Speaker 1: will be in a precarious position. And so that is
Speaker 1: where we tried to stop. But as you know, in
Speaker 1: a digital age, a run on a bank can happen
Speaker 1: very fast. So within a few hours it was too late,
Speaker 1: and by the time we got our group together, the
Speaker 1: fdi C already stepped in. Now, of course, regulating support depositors.
Speaker 1: Hamant but there's still a lot of stress because equity holders,
Speaker 1: bondholders are not protected. We're looking at the full out
Speaker 1: in terms of share price from First Republic, for example,
Speaker 1: which does also have ties with the startup community. Are
Speaker 1: you still having to talk to your portfolio companies about
Speaker 1: diversification of their treasury. Absolutely. First of all, I have
Speaker 1: to say, the government stepped in here in exactly the
Speaker 1: right way, in exactly the right time. Had they not
Speaker 1: done that, this truly would have been a contagion. I
Speaker 1: think things are in a very stable place now, and
Speaker 1: the advice we are giving our portfolio companies first informist
Speaker 1: has been let's make sure we have business continuity and
Speaker 1: we are perils being met and the operations are there,
Speaker 1: the employees are comfortable that they're going to get paid
Speaker 1: this week, and then we are saying we need to
Speaker 1: think about diversification, not just for them, for ven firms too.
Speaker 1: We were all just so used to relying on SVB
Speaker 1: as as our bank. You say the government is exactly
Speaker 1: what it should have done. Now many would say, yes,
Speaker 1: they do need to step into help depositors. But what then,
Speaker 1: of basically being a bailout to venture capital firms in
Speaker 1: and of themselves. Is there nothing you could have done
Speaker 1: specifically as a grouping to support the bank. This is
Speaker 1: not a venture capital bailout, first and foremost, I do
Speaker 1: think we could have done things. And in fact, over
Speaker 1: the weekend, all the firms, including us, we had put
Speaker 1: together plans to lend capital from our balance sheets to
Speaker 1: help these companies make perol. You know, I think that
Speaker 1: would have at least a word the crisis for a
Speaker 1: couple of weeks while the right you know, solutions were
Speaker 1: in place. But this all happened so fast that honestly,
Speaker 1: if the FED hadn't stepped in and guarantee these deposits,
Speaker 1: it would have been very difficult. Parolls being made now,
Speaker 1: Parols being made now. The site from who last I
Speaker 1: heard this VB side had started processing. Then it was
Speaker 1: down because there were so many folks checking. But but
Speaker 1: it's in motion now. What's the net result of all
Speaker 1: of this funding was already hard to come by five
Speaker 1: days ago the deal counts drop listen. We approved the
Speaker 1: deal on Saturday, just to give you a sense, in
Speaker 1: the middle of all this investment on Saturday, so I
Speaker 1: will say, look, this is a This was a very
Speaker 1: serious situation. Hopefully we'll get this averted soon. I don't
Speaker 1: think this has a matural impact on what happens in
Speaker 1: terms of the venture capital business. I mean five days ago,
Speaker 1: if you recall, we were all very excited about what's
Speaker 1: happening with AI and is at the beginning of the
Speaker 1: new cycle, just like social and cloud was fifteen years ago.
Speaker 1: And I think those trends are there. So the entrepreneur
Speaker 1: e activity I do think is very strong and it's
Speaker 1: going to continue to be strong. Man, there's been plenty
Speaker 1: of worry and handwringing about VC funds going under. Have
Speaker 1: your LPs been willing to be helping other LPs stepping
Speaker 1: in backing VC funds to make this payroll lending that
Speaker 1: you said the support Aaron. Ultimately, will you still see
Speaker 1: money going into the VC community? Absolutely? I don't think
Speaker 1: this will impact the capitalization of the venture capital community.
Speaker 1: I don't. I think this is a This is at
Speaker 1: the end of the day, a bank that wasn't didn't
Speaker 1: have the risk management in place for a really fast
Speaker 1: interest rate rising environment, and again the failure around that
Speaker 1: has been managed. And I don't think this is going
Speaker 1: to impact the venture capital firms or the investment pacing.
Speaker 1: That's that's going to be happening in the industry. Optimism
Speaker 1: coming from Tanisa, Thank you so much, General catalysts. Great
Speaker 1: to have you coming and joining us. Let you get
Speaker 1: back to your portfailio companies. Now, rising interest rates are
Speaker 1: good for banks until they aren't. That's what we're seeing
Speaker 1: with the collapse of Silicon Valley Bank and sell off
Speaker 1: in other bank stocks. Here's the backdrop. Higher rates increase
Speaker 1: the profitability of a bank's main business, which is to
Speaker 1: pay lower rates on deposits than they charge for extending loans.
Speaker 1: But when the Federal Reserve plows ahead with NonStop interest
Speaker 1: rate increases like gets done over the past year, problems
Speaker 1: start cropping up quickly. Silicon Valley Bank got hit with
Speaker 1: a one two punch Number one. It's customers. A lot
Speaker 1: of startups were burning through more cash because it got
Speaker 1: harder for them to get funding. VC firms are no
Speaker 1: longer throwing their money around, and when your customers need cash,
Speaker 1: you need to have enough on hand. Banks usually park
Speaker 1: a big chunk of their money in super safe investments
Speaker 1: like treasuries and other securities. So number two SVB was
Speaker 1: forced to sell those investments to raise cash to meet
Speaker 1: all the withdrawals. The fence rate hikes had push bond
Speaker 1: prices lower, which meant SBB sold a securities at a loss.
Speaker 1: The total loss one point eight billion dollars. When SBB
Speaker 1: announced the loss, other startups got scared and started pulling
Speaker 1: their money out. It was an old fashioned run on
Speaker 1: the bank. Big banks may end up the winner here.
Speaker 1: After the Great Financials, the government imposed all kinds of
Speaker 1: capital rules on banks that it deemed too big to fail,
Speaker 1: meaning JP, Morgan Chase, Bank of America and their peers
Speaker 1: are required to have a lot more cash on hand
Speaker 1: to meet potential withdrawals. They even have to ask permission
Speaker 1: to pay dividends to shareholders. And now many of those
Speaker 1: startups are playing it safe by diverse mind where they
Speaker 1: put their money and opening accounts at the big banks.
Speaker 1: That's how it started. How's it going, x rays with
Speaker 1: their acap the busiest man over this weekend, And still
Speaker 1: for me, the key concern has got to be the
Speaker 1: fact that share prices are still down hard at some
Speaker 1: of the competitors, even though many annets would say there
Speaker 1: is nothing exactly out there like Silicon Valley Bank. Yeah,
Speaker 1: I would say the fundamental question at this point is
Speaker 1: one of sentiments. Obviously, the FED and other regulators moved
Speaker 1: to reassure depositors, right, not even investors, but depositors. They
Speaker 1: lined up this new liquidity facility. They made it easier
Speaker 1: and less expensive, essentially for banks to borrow from their
Speaker 1: discount window the lender of last resort right. But it's
Speaker 1: still unclear of whether or not that has managed to
Speaker 1: calm people down. It certainly hasn't calmed down investors, and
Speaker 1: I don't think we can yet say if it's calmed
Speaker 1: down depositors. We find ourselves once again in a situation
Speaker 1: where there are more questions than answers. Particularly is there
Speaker 1: a buyer that's going to come in for SVB? What's
Speaker 1: happening with signature? First Republic's response is pretty dramatic, even
Speaker 1: though it's so vocal about the strength as it put
Speaker 1: it at its liquidity position. Why is there still so
Speaker 1: much anst out there? Max From the exity market reaction alone,
Speaker 1: I think the fundamental issue is that FED policy is
Speaker 1: still in place when it comes to interest rates. So
Speaker 1: even with these backstops, even with these countermeasures, people are
Speaker 1: still worried this problem will persist. I honestly can't say though.
Speaker 1: I mean, again, when it comes to banking, the number
Speaker 1: one thing is confidence, right and sentiment, And if both
Speaker 1: of those things are down just because you have these
Speaker 1: kind of back to back enclosures and failures, I think
Speaker 1: it's hard to win overhearts and mind. Max, what are
Speaker 1: we hearing about Silicon Valley Bank and depositors access to
Speaker 1: their cash this morning? It sounds mixed from what I
Speaker 1: saw on our reporting, I unfortunately have not been as
Speaker 1: close to that as some of our tech reporters have
Speaker 1: been doing, you know, a real bang up job. Apparently
Speaker 1: they are able to get access to it, right, and
Speaker 1: that was kind of the promise made sorry depositors would
Speaker 1: be made whole, they'd be given access, and we are
Speaker 1: seeing that though apparently there have been some hiccups. But again,
Speaker 1: I think the regulators have moved to give people access
Speaker 1: to their deposits to fully backstop them, and that's I
Speaker 1: think what we're seeing play out this Monday morning. And Max,
Speaker 1: ultimately this came down to a massive counterparty risk that
Speaker 1: people hadn't quite factored in in one sector. Will regulation
Speaker 1: change do you think because the administration promises it about banks,
Speaker 1: for example, the big question I think is whether or
Speaker 1: not we'll see some kind of rollback or alteration to
Speaker 1: Trump era moves that made it essentially less cumbersome, less
Speaker 1: burdens on regional banks when it comes to capital requirements,
Speaker 1: when it comes to compliance requirements, whether or not we
Speaker 1: see a push to move away from that, to put
Speaker 1: a new regulations for those banks around capital is the question.
Speaker 1: I don't have the answers on that, unfortunately, but I
Speaker 1: think it would make sense to see some level of
Speaker 1: around that out of DC. Bloombog's Max Ray is one
Speaker 1: of the busiest people I know in the last forty
Speaker 1: eight hours tracking down every angle angle Caroline from the
Speaker 1: Bloomberg newsroom, and what an extraordinary day to have our
Speaker 1: first edition of the twelve pm New York nine am
Speaker 1: Pacific time Bloomberg Technology Tune in tomorrow, and we've got
Speaker 1: so much more to come thick am Fast. We've got
Speaker 1: Trey Steven's partner of founders, Fun no Less joining this program.
Speaker 1: Just a key key conversation is someone that knows the
Speaker 1: valley well, don't forget so much to recap on the podcast.
Speaker 1: You can get it on Apple podcasts, Spotify, iHeart, of course,
Speaker 1: on Bloomberg dot com as well wherever you get your podcasts.
Speaker 1: Day one done, Caroline, But a lot of questions remain
Speaker 1: of what's happening in global technology. This is Bloomberg