The Only Way to Uphold The VC Ecosystem for Tech Funding, Shareholder Value And Save SVB Depositors Money

Jai Waterman | Chief Executive Officer | Blockstation Inc.

Leaders Like Y Combinator and Depositors Must Take Charge to Preserve Strong Tech Ecosystem Amid Federal Uncertainty.

Garry Tan, CEO of Y Combinator, recently called on Congress to act more decisively to save Silicon Valley Bank (SVB) after it was taken over by regulators in a swift show of support for the SVB community and those affected by the recent fallout. The petition to save depositors, small businesses, startups, and employees, promotes full control by the government. Given the current circumstances and the 2008 bailout backlash, the FDIC has limited options but they have announced that depositors will have access to all their deposits. This level of depositor protection sets a new precedent, and no one is sure how it will play out in the coming months.

As of Monday afternoon, news outlets are reporting that the FDIC is taking necessary actions to safeguard depositor interests, emphasizing that money in deposit accounts will remain accessible to SVB clients. This ensures that thousands of employees will receive their payroll and that depositor accounts are 100% accessible. However, the fact remains, SVB is dead. They will be bought out by another bank, and this will have a major impact on the tech ecosystem and its players, and the ripples will affect the growth of startups and innovations in tech.??

Albeit unconventional, the only way for the ecosystem to thrive is for its depositors to proactively step up and support the ecosystem they belong to. The FDIC is working on a favorable restructuring of SVB to continue business as usual and to prevent additional contagion. The reality is that nothing will be business as usual when a new bank, with divergent initiatives, takes over. Perception matters, and it's a fundamental reason to maintain the position of control in your approach to protecting your people, operations, funds, and unique funding economy.

Tech startups, accelerators, and the VC world are really in an ecosystem that works hand in hand. There's a downstream of funding and a network of strong support that should not be shut off and cannot be simply shifted to another institution. VCs and SVB companies need to band together to show their support for the newly structured bank by influencing the take-over transaction happening now. It's vitally important to make the takeover attractive by increasing its value instead of allowing it to go for pennies on the dollar.

There is no government bailout, which means their fix is going to cost you greatly. Deposits may be 100% recoverable but investors who nourished the formation of the ecosystem are at a loss and in the coming hours the SVB tech economy is coming to a complete halt.? Loans and bridges won't get you far. Collective efforts are needed to not only protect deposits but shareholders and the entire ecosystem.?

As an ecosystem proponent and an ally to regulators and financial institutions, this is what must be done to maintain control and keep your world thriving. ?

1. Depositors that made a run on the bank must commit to bringing the money back to the bank – now this becomes an attractive buy. Once SVB has been transferred appropriately and in good hands, then deposits can be returned and there are no longer issues with ratios.
2. With the community backing this bank purchase, the additional capital could be raised easily if required even by the community itself, this could provide more leverage to push a good bank into the picture and keep the tech orientation.
3. With the cash committed or in place (arranged through some logistics) and SVB is restructured with added risk-mitigating staff/ownership, deposits remain safe and business can return to normal, assuming the FDIC would allow this. And why not. It would mean investors, which include citizens and members of the public, are further protected alongside the depositors.

Also at this point, you have no apparent risk of bringing deposits back to the restructured SVB since the FDIC is backstopping any losses. The reality is the FDIC does not want the failure of a Bank, there's significant systemic risk associated with this, its domino effect, and how far it can reach is unknown. The FDIC receiving a depositors petition to allow the reconstitution of SVB with a few structural tweaks and increased scrutiny, would likely agree with the requests of 65,000 companies and a million employees.

This strategy has worked in the past using CCAA rules in Canada and Chapter 11 in the USA and can be used for the same purpose and quickly get everyone back on track. The key here is the mass support of SVB depositors and shareholders. Anything short of this…. consider your ecosystem shattered.

The following steps should be taken:

1. Companies sign a petition committing to keep deposits with restructured SVB
2. A committee of the Depositors is formed
3. Committee assigns competent legal counsel to halt regulators from overreacting and overarching action, such as protecting the depositors at the expense of public investors
4. Courts award committee and SVB (restructured) to move forward with operations
5. Depositors each contribute about $30k to meet SVB financing requirements, which means everyone in the ecosystem is safe, including SVB shareholders
6. The new acquirer buys an attractive bank at fair price and continues supporting the ecosystem.

There is not a single bank in the world that utilizes Fractional Reserve Banking that is immune to a run on the Bank. It's based on a community of trust. We must put our trust in institutions that are built to grow our industry ecosystems while ensuring these institutions mitigate risk. It's our fiduciary obligation as a citizen of the country to support the FDIC or the Central bank. And it's our obligation to support our community and ecosystem banks, ensure they are set up to and positioned to weather longer-term impacts.

The good news is, evolution promises small and medium size businesses will have a better way to raise the capital they need and this will become very apparent in the coming months as Tokenization finds its home on regional and national stock exchanges.

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#blockstation #tokenization #techfunding #techecosystem #shareholdervalue #svbstartup #svbcollapse #svbdepositor #svb #collectiveimpact #systemicrisk

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@bretthellman @dylanitzikowitz @alexfurman @ngpedro @garrytan Timothy J. Mayopoulos

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