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There has been a lot of noise about VCs telling their startups to take their money out of SVB.
While I generally err on the side of shutting up on Twitter, I want to make an exception to my policy:
IMO, VCs were correct to advise startups to move their money from SVB.
First, I have to commend SVB for its role in helping build and support the entrepreneurial ecosystem for decades. Thousands of people and startups owe it a debt of gratitude. Also, regardless of its impact on entrepreneurship, no one wanted to see SVB blow up. Full stop.
That being said, Given the circumstances of SVB, keeping deposits there on March 10th was a bad strategy for startups. Why?
SVB was objectively in trouble and at risk of a run. I will skip the details here and point you to the pieces of far smarter people on the matter:
There are 2 crucial things to consider here.
1. Given the position SVB was in, startups faced an asymmetrically bad trade when it came to keeping their deposits at SVB.
• Upside - no run, and everything is fine
• Downside - Lose their deposits or short-term access to their deposits, resulting in some combination of inability to pay their employees or shuttering their businesses altogether.
So while "hold the line" sounded nice (and is excellent advice in movies like the Gladiator), it was a bad strategy for startups at the moment regardless of the eventual outcome and the reverence the entire community had/has for SVB.
2. VCs have an obligation to do what is best for their startups.
When VCs invest in startups, they engage in an implicit social contract to support and assist them in whatever way possible - regardless of whether times are good or bad or whether it's easy or hard to do.
I know this sounds a little hokey, but I genuinely believe that this is a VCs responsibility and that most VCs deliver on it.
Given these points, advising startups to take their money out of SVB was the CORRECT move and something that VCs should have advised their startups to do.
This may not have been a popular piece of advice, and nobody wanted to see SVB go down, but that doesn't matter here. What matters is helping your startups do what is right for them.
It’s fun to create an anonymous hall of shame website about VCs telling their founders to move their deposits svbhallofshame.wordpress.com/
But the story SHOULD be about VCs standing by their founders when times are tough, which is precisely what they should do, regardless of what you think of them in other contexts.
So I applaud all the VCs who did the right but unpopular thing, including my boss @ericbahn .