As the SVB dust begins to settle, what’s ahead for startups, VCs and the banking industry?


Image Credits: Nigel Sussman (opens in a new window)

The public and private markets are busy digesting a frenetic weekend kicked off by the failure of Silicon Valley Bank late last week.

After a run on SVB, an institution where a great many venture capitalists and startups stored their cash, the bank was taken over by the U.S. government after depositors raced to get their capital.

Concerns that thousands of startups and other companies would be unable to make payroll and cover other expenses this week led to calls for depositors at SVB to be made whole.

The Exchange explores startups, markets and money.

Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.

There’s nuance to the call. While the Federal Deposit Insurance Corporation offers coverage up to $250,000 for business and personal accounts (think checking and savings accounts, not stocks, crypto and the like), there’s also a history of depositors being made whole during crises of this nature.

By the middle of the weekend, sentiment had coalesced around two positions: One side noted depositors needed to be made whole, fast, to allow SVB-banked companies to make payroll and prevent larger contagion. The other posited that SVB customers deserved to suffer because they concentrated their banking in a smaller institution and then yanked their cash in a panicked rush when the bank teetered.

There’s some mental scarring in the United States regarding government involvement in banking fiascoes. Not everyone is content when they look back at how the 2008 crisis went down, how money was spent, and how legal and financial liability was ultimately handled.

This explains why some folks — myself included — had a knee-jerk reaction opposing the use of government resources to resolve the situation. For what it’s worth, I wound up swapping my views when it became clear that it would be regular folks who would get crushed the hardest if SVB deposits remained locked up for an extended period of time.

If you are a crypto person, the other big news from the weekend was the government takeover of Signature Bank, the second of two crypto-friendly banks that failed in a week.

By Sunday evening, the U.S. government announced that thanks to the FDIC, SVB depositors were safe and would get their cash shortly. HSBC wound up buying SVB’s U.K. arm, and I presume that by the time you read this, other bits of the saga will have sorted themselves out.

With the dust settling on a pretty miserable, if brief, chapter in the startup world, let’s sit back and consider what we’ve learned and what’s ahead. For the sake of time and space, we’re proceeding in bullet points.

Starting with banking:

  • Given the use of FDIC insurance capital (the FDIC Deposit Insurance Fund) in this case, it appears that the effective level of deposit insurance in the U.S. banking system is not really capped at $250,000. This changes the calculus of who bears banking risk (and whether there is an inherent moral hazard at play in allowing certain banks to be more aggressive than their peers but with similar backstopping).
  • While the government is saying as much as it can that no public money is being used, folks who use banks — including consumers — have effectively paid into the Deposit Insurance Fund and thus contributed to SVB’s assistance (at a minimum in creating a liquidity pool; potential losses or gains are not clear at this juncture). So, sure, it’s not a bailout in the sense that U.S. taxpayers bought a broken bank, but there is regular folks’ insurance money at play here. That’s why our question regarding moral hazard matters.
  • Bottom line: We could see banking regulations change in the wake of the SVB mess, and that could impact not only where startups and VCs bank but also how startups interact with the American banking system.

Now, venture capitalists:

  • Some venture capitalists would do better to avoid a branding issue when they suddenly need government help. If you have a history of railing against the government for stepping in to assist others, demanding instant help when your own house catches on fire might not be the best way to get it. The government, to its credit, did what the market wanted anyway. Perhaps there will be some introspection in the aftermath.
  • The VC community is not a community. Instead of banding together to prevent a bank run, VCs told their startups to pull capital and helped power a $42 billion run on SVB. It’s clear that the venture world takes an every-man-for-himself posture when there’s blood in the water.
  • Some venture players simply opened their own accounts to ensure that startups in their portfolio would survive. Some did not, either due to exposure to the same banking issues (personal and fund capital at SVB), a lack of personal capital (not every venture capitalist is wealthy, especially those earlier in their careers or solo managers with lower assets under management), or because they didn’t want to. Some VCs built goodwill over the weekend; others did not. This will impact future funding activity.
  • Bottom line: Concentration of capital led to a huge fustercluck among venture players and startup founders. In the future, we may see attempts at less concentration to prevent situations like this. This could change how startups and their backers bank.

Next up, fintech startups:

  • While SVB-banked entities were sweating blood, fintech startups with minimal to zero exposure to the mess leaped into action. This was probably a pretty good move both in terms of driving business and fostering goodwill. The fact that deposits will become available today, undercutting how much work some fintechs will actually have to do, is beside the point.
  • The question ahead of us is how much folks in the startup and venture market will want to trust any bank apart from the very largest in the world. It’s hard to overstate how insane it is that SVB, well capitalized on paper and functioning this time last week, is now a historical anecdote.
  • Bottom line: While fintech startups moved fast to help during the chaos, they could find themselves less attractive as banking alternatives in the wake of the crisis.

TechCrunch is actively working to collect venture capital and founder reactions to all the latest and hunting for hints about where things are heading next. Got thoughts on that? Send ’em to

What is clear is that this story’s first chapter is all but over. What comes next will form the rest of the novel.

Read more about SVB's 2023 collapse on TechCrunch

More TechCrunch

Welcome back to TechCrunch’s Week in Review. This week had two major events from OpenAI and Google. OpenAI’s spring update event saw the reveal of its new model, GPT-4o, which…

OpenAI and Google lay out their competing AI visions

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

1 day ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

1 day ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo