The collapse of Silicon Valley Bank is a turning point for tech.
Last Friday, California regulators shut down Silicon Valley Bank—a prominent lender for start-ups and venture-capital firms—marking the largest American bank failure since the 2008 financial crisis. Two days later, the cryptocurrency-focused, New York–based Signature Bank was also seized by regulators. What happens next for the U.S. economy remains to be seen. But what is becoming apparent is that the promise of Silicon Valley is beginning to lose its luster.
A House of Cards
The story of Silicon Valley Bank coincides with the rise of the start-up—and possibly with its fall, at least insofar as the start-up has existed in the 21st-century public imagination.
Founded in 1983, the bank targeted a particular cohort of borrowers—“start-ups, technology firms, and wealthy individuals,” as my colleague Annie Lowrey puts it. By lending to a number of start-ups whose ventures found success, SVB became one of the 20 largest banks in the country. But in the longer term, the bank became vulnerable to its own lack of diversification.
Annie writes:
SVB’s clientele is heavily concentrated in the tech industry, which boomed during the pandemic. That led to a dramatic increase in SVB’s books … Normally, banks take such deposits and lend them out, charging borrowers different interest rates depending on their creditworthiness.
