Silicon Valley Bank's Collapse
What we can learn about stakeholder management and digital communities
The global banking system has been undergoing a crisis in confidence over the last week as a result of a bank run on Silicon Valley Bank. As a client of Silicon Valley Bank, our team has been watching the situation closely as a concerned stakeholder, but as analysts of digital communities creating mass movements on the internet, we’re also paying close attention to three themes:
It appears that the SVB collapse was accelerated by a stakeholder communications failure.
The communications failure was greatly amplified due to stakeholders sharing a digital community.
In the years, months and days leading up to the SVB collapse, there were missed opportunities to translate passionate brand loyalty into longterm stakeholders via equity.
It appears that the SVB collapse was accelerated by a stakeholder communications failure.
Silicon Valley Bank’s liquidity crisis didn’t appear out of no where and there were a number of influential voices in the investing community that have been sounding the alarm for weeks. Going back to mid-January, Bill Martin of Raging Capital Management dropped a tweet-storm suggesting that SVB could face major issues with its “held-to-maturity” securities portfolio and felt management likely bought the top of the bond market.
By the end of February, Bryne Hobart, who publishes a well-known newsletter to over 40,000 subscribers of influential VCs and Silicon Valley insiders, also started raising the alarm bell and he appears to have forecasted the ultimate demise of Silicon Valley Bank.
At this point, SVB management should have been taking proactive measures with their largest and most influential customers knowing that there were predominant voices expressing concerns about the bank’s solvency.
Fast forward to March 8th, SVB issues a press release announcing a new equity raise to cover the sale of $21B worth of longterm securities at a $1.8B loss, bringing Hobart’s hypothetical situation to bear, and within 24 hours it’s believed that $42B had been withdrawn by depositors as the stock dropped 60%. Lulu Cheng Meservey, the EVP of Corporate Affairs at Activation Blizzard, was quick to point out that the SVB press release lacked critical information which could have helped quell fears of both investors and depositors.
The communications that were eventually released was so brief and uninformative that it only accelerated the collapse. Yahoo! Finance reported at the end of day on March 9th:
SVB's CEO Gregory Becker has been calling clients to assure them their money with the bank is safe, according to two people familiar with the matter.
“While VC (venture capital) deployment has tracked our expectations, client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted," Becker said in a letter to investors seen by Reuters.
Key point: SVB failed to distribute critical information in a format or on a platform that would be easily consumed by the thousands of depositors who were making decisions on whether or not to withdraw their funds. As we learned in a previous Roundtable Roundup on human-centered design, it’s important to meet the stakeholder where they are; in this case, SVB management missed the obvious opportunity to engage many of the key stakeholders who were sitting on Twitter the entire day. Could there have been a different outcome if SVB had hosted a Twitter Space with key stakeholders on the morning March 9th? We will never know, but the strategic communications breakdown is an important lesson for all crisis management teams.
The communication failure was greatly amplified due to stakeholders sharing a digital community
Over the last 40 years, Silicon Valley Bank has catered to the venture capital and startup community which has exploded in growth over that time period. SVB specialized in offering products, services and benefits to a highly concentrated business sector and a deeply symbiotic relationship was built between the bank and its customers. Unsurprisingly, members of this community shared close digital networks and the tribal nature of VC investing consisting of ‘leads’, ‘co-investors’ and ‘follow-on capital’ was particularly susceptible to forming a mass movement. It was reported that the SVB bank run was ultimately accelerated by two of the most predominant VC funds in the world, Peter Thiel’s Founder’s Fund and Fred Wilson’s Union Square Ventures, who encouraged their portfolio companies to move their cash early on March 9th.
With SVB completely silent on Twitter at the time, loyal customers stepped up and tried to stop the bank run, but without a direct and transparent response for SVB leadership, there was very little they could do.
Key point: It is very unlikely this situation would have occurred if Silicon Valley Bank serviced farmers in California’s Central Valley because of the connectivity of the network matters. The powerful and insular VC community that drove the success of SVB overly centralized their social media and network risk which led to its downfall.
In the years, months and days leading up to the SVB collapse, there were missed opportunities to translate passionate brand loyalty into longterm stakeholders via equity.
Based on the public’s general negative sentiment towards banks, there is no doubt that Silicon Valley Bank had one of the strongest banking brands in the world and that was illustrated loudly and proudly throughout the collapse.
The bank run stemmed from equity holders losing confidence in SVB balance sheet on March 8th which caused the VC ecosystem to pull their deposits on March 9th…but who were the equity holders?
Well, we don’t know for sure, but it certainly doesn’t appear to be the same cohort of stakeholders passionately defending the bank on Twitter. According to Yahoo! Finance, over 98% of SVB’s stock was owned by institutions such as Vanguard, Blackrock and State Street and not the community of VCs and founders that were benefiting from the bank’s services. SVB has historically received negligible support from retail investors relative to its market cap and one has to wonder if the stock price would have dropped so precipitously if their loyal and vocal customer base also been longterm equity holders in the business.
According to trading data provider VandaTrack, Silicon Valley Bank’s last day trading on March 9th actually saw record net positive inflows from retail investors who were seeking to take advantage of a perceived arbitrage opportunity being created by the strength of SVB’s brand relative to its collapsing stock price.
Stakeholder Labs is building software for this new paradigm
Had Silicon Valley Bank been a partner of Stakeholder Labs, our technology could have integrated directly with SVB web properties, enabled SVB to offer digital shareholder rewards and engagement tools and created an on-ramp for equity participation when brand loyalty was at an all-time high. Verified shareholders could have received emails or texts on March 8th with key messaging from management before the stock dropped 60% the following day. While there is no way to measure how Stakeholder Labs technology could have influenced the final SVB outcome, there is little doubt that SVB could have benefited from better stakeholder measurement and engagement in their time of crisis.
Furthermore, there have been countless stories surfaced by founders who attribute SVB as being a critical service provider for navigating their startup experience but there is no mention of a founder or VC riding the SVB stock price from a low of $17 in 2009 to a high $727 in 2021. Ironically, SVB drove significantly better returns for their shareholders during this time period than the average VC fund they were servicing but there was no apparent effort to expose their customers to the equity upside.
Key Point: The moment is now for companies to invest in their retail shareholder community and encourage equity participation across their entire stakeholder ecosystem. The era of powerful digital communities capable of transforming markets is here and it is critical that they are effectively engaged towards growth and not mismanaged into a force of destruction.