Bad Exponential Things.
In Venture Capital we are trained to watch for exponentials. Exponential growth is something that your brain can’t comprehend without thinking “What if the entire world changed their behavior towards this solution for the better.” Exponential growth is something special and very difficult surmise.
Outside of work, there’s been an increase in predicting exponentials. Gossip can run rampant and turn into something very harmful. Instead of thinking “How great can this be?” the world is obsessing over “How bad could this get?”
This SVB bank run is a perfect example. The fastest bank run in history. An institution that has been a pillar in startup society for 4 decades, broke in 48 hours. People were so ready to believe that another great institution would fall, that we made it so.
The rise of the tools of social media drive people to make decisions so quickly. A socially viral bank run! The word spreads like wild fire through specific groups of people, and if it’s something tech should panic about — all of twitter already knows and has decided to assemble around it.
One of my favorite books of all time is “the name of the wind.” by Patrick Rothfuss. Theres an amazing quote that I’m not going to insert here, but will insert at the end of this post. It’s too long.
To me, we have a monster in the woods. Someone said “I saw its arm.” someone said “I saw its leg.” Someone said “It’s 15 feet tall.” and another person said “it will eat the town.” Now whether or not I believe in monsters, I’m going to probably lock my doors and arm myself with a weapon.
In a small way, this reminds me of the gossip happening right around the time of the first Covid lock down. Coincidentally, it’s the same week three years ago that the Covid Lockdowns happened. People trying to extrapolate what the worst possible outcome is and socially drive their own opinions strongly through twitter.
The point is, without the mania, SVB would have been perfectly fine. But because we all believed there was a monster, and we believed it so quickly, we all armed ourselves and decided to kill a monster that wasn’t there… but it happened because we believed it to be so.
We live at a time when gossip spreads faster, and whether or not it’s true, it can become the truth.
I’m not sure what the right answer is. SVB has been a great partner to startups for a long time, and I’m sad that they were a victim of social mania.
Try not to fear the monster in the woods.
Quote from the Name of the Wind:
“I’m not,” Ben said. “I’m careful. There’s a difference.” “Of course,” my father said. “I’d never—” “Save it for the paying customers, Arl,” Ben cut him off, irritation plain in his voice. “You’re too good an actor to show it, but I know perfectly well when someone thinks I’m daft.” “I just didn’t expect it, Ben,” my father said apologetically. “You’re educated, and I’m so tired of people touching iron and tipping their beer as soon as I mention the Chandrian. I’m just reconstructing a story, not meddling with dark arts.” “Well, hear me out. I like both of you too well to let you think of me as an old fool,” Ben said. “Besides, I have something to talk with you about later, and I’ll need you to take me seriously for that.” The wind continued to pick up, and I used the noise to cover my last few steps. I edged around the corner of my parents’ wagon and peered through a veil of leaves. The three of them were sitting around the campfire. Ben was sitting on a stump, huddled in his frayed brown cloak. My parents were opposite him, my mother leaning against my father, a blanket draped loosely around them. Ben poured from a clay jug into a leather mug and handed it to my mother. His breath fogged as he spoke. “How do they feel about demons off in Atur?” he asked. “Scared.” My father tapped his temple. “All that religion makes their brains soft.” “How about off in Vintas?” Ben asked. “Fair number of them are Tehlins. Do they feel the same way?” My mother shook her head. “They think it’s a little silly. They like their demons metaphorical.” “What are they afraid of at night in Vintas then?” “The Fae,” my mother said. My father spoke at the same time. “Draugar.” “You’re both right, depending on which part of the country you’re in,” Ben said. “And here in the Commonwealth people laugh up their sleeves at both ideas.” He gestured at the surrounding trees. “But here they’re careful come autumn-time for fear of drawing the attention of shamble-men.” “That’s the way of things,” my father said. “Half of being a good trouper is knowing which way your audience leans.” “You still think I’ve gone cracked in the head,” Ben said, amused. “Listen, if tomorrow we pulled into Biren and someone told you there were shamble-men in the woods, would you believe them?” My father shook his head. “What if two people told you?” Another shake. Ben leaned forward on his stump. “What if a dozen people told you, with perfect earnestness, that shamble-men were out in the fields, eating—” “Of course I wouldn’t believe them,” my father said, irritated. “It’s ridiculous.” “Of course it is,” Ben agreed, raising a finger. “But the real question is this: Would you go into the woods?” My father sat very still and thoughtful for a moment. Ben nodded. “You’d be a fool to ignore half the town’s warning, even though you don’t believe the same thing they do. If not shamble-men, what are you afraid of?” “Bears.” “Bandits.” “Good sensible fears for a trouper to have,” Ben said. “Fears that townsfolk don’t appreciate. Every place has its little superstitions, and everyone laughs at what the folk across the river think.” He gave them a serious look. “But have either of you ever heard a humorous song or story about the Chandrian? I’ll bet a penny you haven’t.” My mother shook her head after a moment’s thought. My father took a long drink before joining her. “Now I’m not saying that the Chandrian are out there, striking like lightning from the clear blue sky. But folk everywhere are afraid of them. There’s usually a reason for that.” Ben grinned and tipped his clay cup, pouring the last drizzle of beer out onto the earth. “And names are strange things. Dangerous things.” He gave them a pointed look. “That I know for true because I am an educated man. If I’m a mite superstitious too…” He shrugged. “Well, that’s my choice. I’m old. You have to humor me.”
Truly a sad story for a great institution.
Reflecting on it after some money saved (and some money stuck), I feel that hope is never a good survival option for a startup.
This was such a specific situation with a small, extremely well connected community of founders, hard wired to act super fast. And all the money at play was more than just bank accounts. It was the blood and lifeline for their startups, dreams, or life projects.