Accusations of hypocrisy and threats of legal action cloud tech industry after SVB collapse
The tech industry got what it wanted on Sunday when the federal government announced it would ensure depositors at Silicon Valley Bank got all their funds back after a run that crippled the institution. Now folks in the tech industry are finding out the price the industry is paying for it — including tarnished reputation, political anger, and bruised pride.
Tech workers, startup executives and wealthy investors are gearing up for a possible settlement after the Biden administration guaranteed SVB depositors would also be able to pay beyond the Federal Deposit Insurance Corp’s guaranteed amount. of $250,000 to access all of their funds.
The need for the government’s contingency measures was the latest black eye for an industry whose reputation has repeatedly suffered in recent years, and it went against the anti-government and anti-regulatory ethos that many tech investors have been preaching.
Billionaire venture capitalists like Peter Thiel have been accused of hastening the crisis by advising startups to withdraw money from the bank last week, while other tech figures have been accused of hypocrisy for defying government action on others and then fast asked for help for themselves.
Margaret O’Mara, a tech industry historian and professor at the University of Washington, said that after years of scrutiny from politicians and regulators, many people in Silicon Valley thought they deserved a bailout.
“There’s this kind of defensiveness, ‘Look, we’re this innovation economy and we’ve contributed so much and there’s no question that this should be addressed,'” she said.
The potential ramifications could include new regulations, class-action lawsuits and further reputational damage for an industry badly hit — all on top of the massive layoffs battering tech companies.
David Sacks, an investor and frequent critic of the Biden administration who has been among the loudest voices on the internet Demand help for the tech industryHe defended himself this week by saying that he only reacts to a crisis after it has started. He accused the crisis over mismanagement at the bank and rising interest rates.
“That shoots the messenger,” he said Monday during an appearance on CNBC. “We drew attention to a problem that needed immediate attention. I think that was constructive.”
While other regional banks are now under scrutiny, SVB was in some ways uniquely vulnerable. Founded in Northern California in 1983, the bank had close ties to a volatile industry and provided working capital for many untested startups. An unusually high proportion of its deposits were uninsured by federal agencies — about 89% in December.
Investors and small businesses alike rallied in defense of the bank over the weekend, writing letters and signing petitions to Congress, but failed to avert the collapse.
“Where did someone say, ‘We know that the interest rate environment will change. Maybe we should try a different strategy’?” said O’Mara.
The fact that California’s brightest technical and financial minds didn’t see the troubles coming — let alone stop them — hadn’t escaped many observers, and indeed the bank’s CEO, Greg Becker, had called for more lenient regulations in 2015.
“Our society urgently needs to allow irresponsible, arrogant VCs and techbros to face really painful consequences for their failures,” says Faine Greenwood, data scientist and drone researcher. wrote on twitter.
Some worry that the tech industry isn’t showcasing its best speakers.
“There are certain voices on social media that are loud and shrill and don’t speak for technology,” Om Malik, a former technology journalist who is now an investor at True Ventures, said in a phone interview.
“All of the actual issues that we experienced as a community over the weekend were handled by people who weren’t on Twitter,” he said. Credit should go to people working behind the scenes, including humble employees at Silicon Valley Bank who have experience in the startup world, he said.
It’s not clear to what extent investors and other tech influencers caused the crisis, but on Friday morning some of them advised companies in their portfolio to withdraw deposits from SVB — turning the bank run from a threat into a reality.
For some, it was an indictment of the entire culture of Silicon Valley, the geographic region centered roughly on the southwest shore of San Francisco Bay.
“I don’t know who needs to hear this, but when the wealthiest people in your community start the bank run instead of stepping in to stop it, you really don’t have a ‘community’ in your hands,” EW Niedermeyer, author of a book about tesla, wrote on twitter.
Philip Rosedale, founder of virtual reality platform Second Life, said the bank run was an example of venture capitalists acting out of self-interest and mutual distrust.
“Imagine if all these VCs were all in one room,” he said in an interview on the sidelines of South by Southwest, the tech conference in Austin, Texas, as the crisis unfolded.
“Think of what everyone else would have said about that one guy who was like, ‘I’m telling all my people to get their money out now,'” he said.
By Monday, some venture capitalists had stepped out to celebrate the bailout. Ron Conway, a prominent San Francisco-based venture capitalist, said in an email that his investment firm “was able to leverage its business and policy/government relationship network to generate positive outcomes and serve SVB’s thousands of small business clients.” to help resume their businesses normally. ”
At a Friday dinner in San Francisco, he took his case to former House Speaker Nancy Pelosi and former President Barack Obama, according to news website Puck, which dubbed the bailout “The Ron Conway Bailout.”
However, other investors are willing to defend themselves against the criticism. Sriram Krishnan, a general partner at venture capital firm Andreessen Horowitz, said on Twitter he’s realized over the past few days that people are failing to appreciate the value of the tech industry.
“We must tell our story better, or our enemies will do it for us,” he said called. He did not say who the enemies were, and he did not respond to an interview request.
This article was originally published on NBCNews.com