Artifact, the new personalized news app from Instagram’s co-founders, is another startup whose funding was caught up in the Silicon Valley Bank failure, and co-founder Kevin Systrom believes there could be more trouble to come for Silicon Valley. The founder disclosed in a recent interview the team had 100% of Artifact’s funds at SVB prior to the bank’s failure. However, unlike many other startups impacted by the bank crisis, Artifact’s co-founders were in the fortunate position of being able to self-fund their startup, if need be, and were planning to loan the company money to keep it afloat.
As it turns out, Artifact’s financial crisis was short-lived. Systrom tells us that after the government took control of SVB, Artifact has since recovered all funds and has no more problems on that front.
The founder had earlier shared Artifact’s SVB exposure in a conversation with journalist Kara Swisher at SXSW, which has also been published to her “On with Kara Swisher” podcast.
When asked about Artifact’s exposure, Systrom responded “what’s 1% higher than 99%?,” before confirming that yes, 100% of Artifact’s funds were locked up at the failed bank, which is now under federal regulator control. However, he added, Artifact would have been able to move forward because it’s still small — only seven people — and because the co-founders had “enough personal liquidity” that they could have figured out how to loan the company money, he said.
Systrom also acknowledged in the interview the fortunate position he and Instagram co-founder Mike Krieger were in with regard to SVB’s failure and its impact on their new business.
“There are other companies with exactly the same percentage locked up who need not only to meet payroll, but they have all these bills — and people don’t just have this money lying around. You can’t just dish it out,” Systrom said.
Still, like many other entrepreneurs, the founder had been caught off-guard by the bank’s collapse, noting that even though you expect there to be a lot of challenges when starting a new company, losing access to your funds is “last on the list of your expectations.”
He also suggested the problem with the bank may have been tied to the herd mentality in Silicon Valley, adding that there was no conscious decision on his part to work with SVB in the first place.
“As you find out in Silicon Valley — whether it’s wealth managers or accountants or lawyers — there’s this herd mentality and no one actually asks each other why they use whatever service they use. If you’re an entrepreneur, one of my lessons is ‘ask why’ — do some due diligence. And I think that’s important because you never really know what you’re getting into. But there’s a lot of like, oh, so-and-so company uses X, Y or Z, we should use them,” he said. “And that creates problems in the long run.”
He further cautioned that the bank crisis was only a hint of the “bad things” still to come for the Silicon Valley tech ecosystem, pointing to how every crisis has been precipitated by rising rates. And with a bank’s failure, there could have been cascading effects — for example, when one company can’t pay another, there’s potential for fallout.
“My sense is that whenever there are good times you should be really concerned in Silicon Valley,” such as “whenever companies that you know are dumb ideas are raising many tens of millions of dollars; when people are throwing excessive parties,” he said.
Systrom himself was just old enough to have watched the other boom-and-bust cycles in the Valley from a distance — in 2000, he was coming out of high school, and in 2008, he was just coming out of college.
“I saw both crises from afar. And the patterns just repeat over and over and over again. But what you realize is no one gives a shit. Because as long as you’re making money on the way up, it’s like musical chairs — if you can just find a seat before everything comes crashing down, you make a lot of money and you go away and you’re happy,” Systrom said. “But it turns out there are a lot of people without seats at the end of that. And I think that’s crushing to the Bay Area, generally, that is already dealing with enormous wealth disparity.”
“My point is, it was very clear that the writing was on the wall — that bad things were going to happen…I think the SVB thing is like 5 or 4% of the bad stuff to come,” he added.
The wide-ranging interview touched on other topics as well, including Artifact’s ability to compete with Twitter, whether the U.S. should ban TikTok, the state of crypto, what’s going on with Instagram today, and his approach to Artifact as a second-time entrepreneur — where he’s expected to have learned and adapted from any missteps from building Instagram, among other things.
On the latter, he reflected that the tech industry is much different now than when he started Instagram.
“I think the era of tech just being able to kind of do whatever it wants is long gone, hopefully, because it’s important that people think through the implications of what their company will do before it gets there,” Systrom said.
He also noted that, while he believed in the underpinnings of web3 and crypto, he saw too much hype, people losing money and people manipulating the consumer.
“I think that’s why tech gets a bad rap,” he said.
On Instagram, Systrom lamented, “we’ve lost the soul of what made Instagram Instagram.”
“I used to be able to go on and see what my friends were doing and see what my family was doing. I think the problem is the incentives are always to go to more commercial, more creators, more deals, more ad dollars.”
As for Twitter, meanwhile, Systrom believes the jury’s still out.
“It’s unclear if the chaos will be positive chaos…sometimes chaos breeds creativity and new products and new ways of thinking.” But, he added, whatever is happening at Twitter won’t benefit Artifact because they’re very different products.
He also went on record as being against a full ban of TikTok in the U.S. but said it deserved scrutiny. After all, China doesn’t allow our social networks, like Facebook and Instagram.
“I don’t think it’s crazy to say that we should look at it really closely,” Systrom said of the ByteDance-owned video app. “I don’t think we should ban it. But I think we should figure out how to run it in an independent way inside the United States. I think that’s a really smart plan.”