Column: The Silicon Valley Bank is bankrupt. Silicon Valley is broken

There’s been a lot of math lately about Silicon Valley — the as soon as powerful founders fall from grace, The Collapse of the crypto industry And mass layoffs in the tech sector, to name a few. But it is the stunning bankruptcy of Silicon Valley Bank, the region’s plain old bank and one of the largest in the country, that should ultimately force us to rethink and reshape the way our tech industry operates.

There seem to be at least two main reasons why the “Startup Bank” failure. First, the huge deposits on his books have stalled in low-yield securities, and they came from venture backed companies, which they did money burns faster than expected, just as VC funding in general has slowed. Second, they and many of their early-stage clients relied on a relatively small cadre of venture capitalists, and as such, SVB was uniquely exposed to a run on the bank if those venture capitalists decided to withdraw their money at the same time.

It is what probably happened.

Rising interest rates weighed on the bank’s balance sheet, it lacked sufficient resources to guarantee withdrawals and an attempt to raise capital failed – prominent venture capitalists such as Peter Thiel and his Gründerfonds advised their companies to shut down. the others did the same, to the tune of $42 billion during recording attempts.

As many have pointed out, the bank probably should have seen trouble when the Fed raised rates and made it clear that it intended to continue doing so. And the bank should have communicated its strategy to account holders after a crisis seemed imminent, and so on. But even looking past recent events, that should be obvious “Backbone” of the Silicon Valley startup ecosystem has long been broken.

If the SVB has been vulnerable to a rapid rise in interest rates, it’s because it focused on an industry where it’s the norm to pour cash into untried companies as venture capitalists compete to see who can work the hardest to an inherently random system, one that has ruthlessness to its core. It’s actually a bit surprising that it took so long to collapse under the weight of hard-to-deploy capital.

The ‘build first, ask questions later’ philosophy, the ‘act fast and break things’ ethos; the mandate to expand your platform at any cost Than Trying to find ways to deal with this long after the Nazis moved in; the unicorn-or-bust mentality that says nothing is worth it unless the market can scale to global dominance; these are all by-products of a system that begins with a venture capital-led model of technology development.

Venture capitalists make their money by betting on many companies in the hope that one will become the next billion dollar success – with investments of this magnitude nothing else is worth it. So you have thousands of companies with young founders who suddenly have more money than royalties accused of making more money than God.

It is not uncommon for them to park their new truck at the SVB. As such, the vast majority of funds held by SVB are not FDIC-guaranteed, with each deposit insured up to $250,000 — only 3% to 6% of the bank’s deposits are so small, according to some. The typical startup committed millions there.

And it’s unclear if they’ll see it again. The assets of the SVB are being searched and while some are optimistic that they will find a buyer and restore their depositors, it is far from certain. If it falls short, it will be a remarkable indictment of what Silicon Valley’s financiers really value.

Remember, all Elon Musk needed was to snap his fingers and call a bunch of venture capitalists and JPMorgan, and he had a deal to buy Twitter for the overheated price of $44 billion. The SVB is the economic base for the many start-ups and technology companies in the region. As of 2015, it serves 65 percent of all existing startups and many of the best-known venture capital firms, according to the New York Times. If it doesn’t find a buyer, be it a major bank or regional investors or a conglomerate of theirs, it will be more telling where the priorities lie.

Because if SVB goes under, the aspiring founders and leading tech workers will suffer the most. Companies registered with the SVB are missing payslip because of the accident. People who aren’t venture capitalists don’t get paid for their work, and people who work all day on a dream they believe in (although they also believe it can make them more money than God) lose their business.

As for the venture capitalists? Too bad they have to be quick – they are in Aspen, almost to the top of the ski lift.

Now imagine a model where an investor who wanted to invest money in a technology company actually assessed the risk, or where founders had to prove their technology was viable before making a $100 Series A million or whatever. Imagine a world where there are a handful of guys not can decide among themselves whether an idea is suddenly worth the gross domestic product of a small nation-state, or kills an entire industry without a sustainable replacement – or panics about taking down a major financial institution. Utopian, I know!

It is high time we found ways to halt, or at least proportionally tax, this incredible and reckless capital flow to bring the technology sector back to earth.

For the alternative is at hand – technological products relentlessly developed and unleashed with the constant risk of complete collapse that affects anyone not living on Sand Hill Road.