The Fallout from Silicon Valley Bank's Failure — With Om Malik and Chris Tolles

Om Malik is a partner emeritus at True Ventures and a former tech journalist. Chris Tolles is a Silicon Valley entrepreneur and former CEO of Topix. The two longtime tech insiders join Big Technology Podcast to discuss the aftermath of Silicon Valley Bank's collapse. We cover not only what the bank meant to the tech industry — and how its failure will change the landscape — but why so many people were happy to see it fail, and sought to prevent a bailout. Join us for a nuanced discussion of Silicon Valley's place in society, and whether it can continue operating effectively with its favorite bank in shambles. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Kantrowitz?

  LinkedIn Presents.

• 0:14Alex Kantrowitz?

  Welcome to Big Technology Podcast, a show for cool-headed US conversation of the tech world and beyond. We're joined today by two Silicon Valley insiders who spent a long time working in tech and will have some serious insight to share on not only what happened with Silicon Valley Bank's failure, but the fallout and where we go from here. We are joined by Omalik, a former tech journalist and a partner at Emeritus at True Ventures, and Chris Toll's, former CEO of Topics and a current Silicon Valley executive. Look, this is a conversation that's going to go not only into what happens to the bank and the banking in Silicon Valley after this, but also, why was there such a backlash to

• 0:59Alex Kantrowitz?

  Silicon Valley? Why did people want these companies and the bank to fail? What does it mean for the Valley? And were there people rooting for it to fail? Also, we look into the behavior of the venture capitalists that were so vocal. And we ask, basically, does Silicon Valley need some new spokespeople? What was happening behind the scenes? And why were some of the loudest voices seemingly some of the ones that should have been the least trusted? This is going to be a great conversation, and I think you're going to get a ton out of it and come away knowing a lot more, not only about what happened, again, but what's going to go on from here and the challenges the tech industry faces. My conversation with Ome and Chris, right after this.

• 1:43Alex Kantrowitz?

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• 2:26Alex Kantrowitz?

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• 2:47Alex Kantrowitz?

  Omen Chris, welcome to the show.

• 2:48Speaker 01

  Hi, nice to be here.

• 2:51Alex Kantrowitz?

  Great to have you guys on. What a duo we have today. I'm curious, you're on the ground in Silicon Valley. What has the past few days been like for you?

• 3:00Speaker 01

  Sure, so it's funny, I've been talking to a bunch of friends of mine who, a couple of folks who work there at Silicon Valley Bank, and that obviously has been really rough for them. I also talked to a couple of friends of mine who are VCs, who have been talking to all their portfolio companies. And I talked to another friend of mine who's a CEO of a company that had all their money at SVB and works on the East Coast and was able to get a lot of his money out on Thursday before everything went to heck. And then finally, I talked to a friend of mine who's been a banker, you know, an investment banker and a commercial banker for 25 years. And I got the whole kind of like from the banker perspective of this. So it's been an interesting couple of days.

• 3:40Alex Kantrowitz?

  And Omen, you had a piece that I thought was terrific. It was called "A Tough Weekend" and talked a little bit about the emotional side of things, I think, in terms of what it was like being, you know, seeing this happen. So you want to talk a little bit through in terms of what you saw, how you felt?

• 3:57Speaker 02

  Yeah, I think it was, I talked to a whole lot of founders, which is like, and I'm part of like various Telegram groups and WhatsApp message threads and, you know, iMessage threads. And like, I think the idea that we were unable to have

• 4:19Speaker 02

  Any clarity was very unsettling for a lot of people. The idea that they can't do payroll. Companies which had, like Chris said, a lot of money in the bank, but there was no one to tell them what was happening or what was actually going on. They created like a sense of dread and, you know, freak out, which I have not experienced in my thirty plus years in the Valley ecosystem. It was like really hard, even on a personal level. Like, you know, we have a lot of portfolio companies which were like, you know, which bank with SVB. I personally bank with SVB, so there's a lot of skin in the game for myself.

• 5:01Speaker 02

  And like, it just was the idea of not knowing and the idea that the Valley could actually like fall apart just like that for no reason. Like, which, and I say no reason in a sense that you just go, you're going about doing your business and like next thing you know, your startups are facing like, you know, a threat which you didn't really factor in. It was something new and unusual for a lot of founders. And like, I think I spoke to quite a few of my friends and they were like, oh my God. Like, literally grownups who shouldn't freak out were like that. This was the risk no one actually had factored into their game plan.

• 5:45Alex Kantrowitz?

  And Om, did you decide to take your money out after you got access back to it? Or did you think about taking it out beforehand? What about your personal funds?

• 5:54Speaker 02

  Well, I've been, I have taken some money out and put it in a different bank. Like, because I don't quite know what the future is for the bank right now. But if it came back and the same people were working there, you know, I would continue to do business with them. Right now, I don't know what the status is.

• 6:15Alex Kantrowitz?

  Wait, you wouldn't do business with the same people? Because they are the ones that also got this whole party started. So how do you have faith in them?

• 6:24Speaker 02

  No, I, I, I work with rank and file at Silicon Valley Bank. They are the bank. The management team is not the bank. Like a lot of people don't quite understand Silicon Valley Bank works because there's a whole bunch of people you work with and you develop relationships with over a long period of time. I didn't know Mr. Becker till like I heard his name a couple of days ago. I know the guys I worked with for a long time. You know, now retired Doug Hamilton, Michael Conway, who's like, you know, it's like you know people, you know, Lynn Bruno was another guy we worked with. Like, that's how you, that's the idea of

• 7:07Speaker 02

  having a community and an industry bank. It's not the CEO you reach out to.

• 7:14Alex Kantrowitz?

  That makes sense. And, you know, Chris, you've been through this before in some way. So you want to talk about the previous experience that you've had and how this relates?

• 7:23Speaker 01

  Yeah, so it's interesting. So I was CEO of Topics in 2007, a company that was a formerly a news community. And we had actually taken an investment from Tribune Night Ritter and Gannett. And so we had about $5 million in the bank. And, or so I thought. And so it turns out at the time, there was some of these things called auction rate securities. And it's essentially auction rate securities are long term securities that you can, that become liquid because there's, there's a bond market for these short, for the, becomes short term paper because it's like you could take these and say, oh, we'll take this 30 year or 10 year treasury or, or corporate bond, and then we'll sell it in these auctions and then you can get in and out pretty quickly. You know, for 30 years, these things worked

• 8:05Speaker 01

  great. And then it turns out in 2007, as a harbinger of the credit crisis that was to come, the, the auctions stopped being liquid. And it turns out later that some of the, some of the folks that were selling these things had kind of artificially supported the market and basically got, got rid of a lot of them, leaving a lot of folks like myself holding the bag. And these things became illiquid. So all of a sudden, you know, two thirds of my money in the bank became impossible for me to trade. I couldn't collateralize them. I couldn't do anything with it. It took about a year and a half to work these things out. And when all of a sudden, it wasn't all of my money, but a lot of my money basically became unavailable to me. And that liquidity, like it's there, no one's saying that these bonds aren't going to be good someday.

• 8:49Speaker 01

  It's extremely distressing. And so it's funny, and then I had to work with my bank. It turns out these were through Bank of America Securities. And Bank of America was, as a corporation, awful. But to Arm's point, the guy I worked with, the actual banker, a couple of levels up, you know, he and I started working on this and trying to figure out my CFO at the time. And I, we, we went in there and it was like doing battle. And at some point in time, that guy actually got me a collateralized loan on these auctioned securities. And he came back to me one day and said, you're the only CEO in America that has this deal. We're not collateralizing the larger amounts because we just can't do it. And smaller guys we don't care about, you were gonna do it. And it was, it was, it was great. And it turns out, a couple of weeks later, I didn't need it because Cuomo, the Attorney

• 9:32Speaker 01

  General of New York, came in and told the banks, look, unless you, unless you make the people with less than 10 million bucks worth of these things liquid, we're gonna start filing criminal charges. And all of a sudden, the banks were able to uncollateralize them. But I learned a lot about working with bankers, the importance of, of looking at what's in your bank account. It's funny, how many, how many people out there went and looked at the balance sheet of their bank? I mean, that's just something that I don't think most people think of as reasonable. And even folks with lots of money, it, it turns out you need hundreds of millions of dollars before you start having people who have that kind of experience to learn Treasury departments at your, at your firm. But I thought that was a huge thing that, and once you've been through this liquidity event, you start paying attention to those things. And until you do, you don't.

• 10:16Speaker 01

  Now, like when I had a, when I was later at my time as CEO of Topics, I always had two banks, I always had a little bit of money at each very least. But again, if you look at the operational issues, the bank kind of forces you to have a lot of your, your money within that bank. In the case of having loans, they're gonna wanna make sure that if you have an accounts receivable loan, for example, that the money coming in from your accounts receivable flows through that bank. So it's very difficult to diversify if you have a low, low number of millions of dollars. So you're not insured, nor are you able to go and diversify. So you're really between a rock and a hard place. And that's when these people ask, like, kind of on the, on the Twitter saying, oh, why didn't they diversify? Well, either you can't, or, come on, how many people in America are gonna look at their bank and go, hey, what's your balance sheet like today?

• 11:01Speaker 01

  But yeah, I haven't been through this before. That was a, I've seen this, just the analogy of having your bank account melt in front of you through no fault of your own was, it really resonated.

• 11:11Alex Kantrowitz?

  Yeah, and I think I'm curious, having been through it, and I'm curious what both of you think now. What happens from here in terms of tech startups like, you know, can they still bank with Silicon Valley Bank? Do they start to diversify? Like, when we think about the way that money, because there's a very specialized way that the bank did business. So who picks that up now?

• 11:33Speaker 01

  I'll I'll pick one thing up to extend on that. So we actually, in 2013, I changed businesses a bit. And so we also got in a place where we were needing, we were needing to get an accounts receivable loan because we were actually buying traffic, we were arbitraging ad traffic. So I was buying a lot of traffic on on Facebook and then making money on Google. And what happens there is you need to buy money ahead of, ahead of things, ahead of it before you get the money back. And Silicon Valley Bank, when we went to them and said, hey, I'd like, we'd like to create this accounts receivable loan. Silicon Valley Bank said, yeah, we can do that and we can do this because we know everybody else in your ecosystem. We know how much money is coming in from all your advertisers because they bank with us. We know about Facebook, we know about Google.

• 12:18Speaker 01

  So they, they were able to give us a accounts receivable loan because it wasn't as risky for them. When I went and talked to Bank of America, they don't know anybody in the ad tech space, no one banks with them. So I think that the, what Silicon Valley, what Silicon Valley Bank brought to the table was an understanding of our ecosystem and the people such that they weren't taking these big risks. They knew the VCs were good for the, for the money in the bank. But when you went to them for a loan, they understood our business. And I think that I'm worried about that. I'm worried about people, you know, at Bank of America or Wells Fargo or places like that. When you try to, your startup, they don't know you. All the processes, procedures for startups are different and strange.

• 13:00Speaker 01

  So I am very, very worried about the future of the Valley from that standpoint. Because Silicon Valley Bank did a really good job of helping out startups and understanding our business.

• 13:11Speaker 02

  You know, just to add to what Chris said, I think that's the bigger challenge is we don't really know. I think sure, there is somebody like, you know, J P Morgan or Morgan Stanley or somebody might pick up, you know, a lot of the business which, you know, Silicon Valley Bank has been doing. Will they bring the same human network to the equation? Probably not. Will they bring the industry-wide understanding to the, to the, to the startup ecosystem? Probably not. I think what, what, you know, there is, when you look at banking or any financial institution, there is, or like,

• 13:52Speaker 02

  you know, why financial institutions, the society at large, either you have relationships or you have transactions. I think we, we went from a very relationship-centric tech ecosystem to a very transactional tech ecosystem. And I think the fall of Silicon Valley Bank is a very, very much a manifestation of that shift to very transactional thinking in the valley right now. I think this, this is probably my biggest fear right now is that we are probably going to lose something very special with the failure of, of Silicon Valley Bank right now.

• 14:31Alex Kantrowitz?

  Can you expand on that a little bit, like the more transactional thinking replacing relationship-based thinking?

• 14:38Speaker 02

  Well, I think most people think, oh, I, we have to just move your money, move your money, move your money. And, you know, you scream that in, in, on Twitter and that is great. But like, how do you move your money when you have loans from, you know, line of credit from Silicon Valley Bank and you can't move it? Or, you know, it's like, it's just not as simple as moving your money into a different bank account, like you have a whole different set of, you know, relationships built into that money. And I think this is exactly what Chris was saying, is that his banker at Bank of America helped solve a crisis for him back in 2007.

• 15:19Speaker 02

  Silicon Valley Bank solves those issues all the time, every day, twenty four seven. And I think that's what I mean is that is the relationship aspect of of what they did. And that transactional is is like, I don't really care, you know, what happens to you or your competitor or like, you know, just I want to move my money and that's the end of it all. I'm being very polite right now.

• 15:43Alex Kantrowitz?

  Yeah, well, I definitely have some questions for you about that, Om. So we'll hang on to that for a second because I got to come back to how these B C's acted over the past few days. But before we get there, I'm just curious now, you know, if startups are going to move their money to other banks, what happens like, is this, what is there a concrete implication for the technology industry? If it's not, because it doesn't seem to me like it's feasible, like there could still be this concentrated banking system like there has been. So what are the implications for the startup world and for the tech world in general? If this is spread out across a number of banks versus kept centrally in one?

• 16:21Speaker 01

  I I think there's industry concentration issues no matter what, but this is a real tricky thing. As I mentioned, it's a relationship based business. So now, you know, one thing that hopefully will be a diaspora of Silicon Valley Bank bankers to other banks. Maybe there'll be a maybe First Republic buys Silicon Valley Bank or some other person buys the assets. And many of those people will be there because I I actually follow the banker, the guy at B of A. Well, you know, after like a year or two, he left, went to First Republic. I put my money back in, I I followed him to First Republic. I think there will be a a set of relationships that carry through. But it is a weird thing because it's it's like you, you have these huge banks, J P Morgan, Wells, Bank of America, which are the bigger, the bigger banks, but

• 17:04Speaker 01

  the service you're getting from them often isn't going to be the same caliber as some a smaller regional bank. And the regional banks now have been backstopped by by this new program from the Fed or the F D I C. But it comes down to there will likely be some winners in there and they'll be subject to the same kind of concentration issues where there'll be a place that a lot of people go for their banking. And yet that creates a weakness if everyone's concentrated in one place. To Om's point, one of the problems here, and I think Matt Levine said this in his newsletters, like the problem with Silicon Valley is there's a bit of a herd mentality in some of this stuff. And like, so when you're part of a bank run, it it, oh, it's just, it's a, it's a bad dynamic for everybody. It would have been. It would have been nicer, I mean honestly, to have some other bank in some other place

• 17:48Speaker 01

  obviously experienced this and then Silicon Valley Bank could have fixed its issues. But it didn't and now we've got to probably deal with a set of banks that people start to understand and believe in. So my guess is it's not going to be one, but it'll probably be a couple. Like it'll be a thing where it's like, hey, these are the three banks that that seem to be simpatico with it. And if they're smart, banks are going to start developing practices. They'll try to get folks from who used to work for Silicon Valley Bank. There's a lot of money there. I mean, there's what, like 160 billion worth of deposits? And there's a, there's a fair amount of money to go, go in for. And the bigger banks have never really cracked this market. Maybe it's an opportunity for people to develop good services and, and make this better for us.

• 18:26Alex Kantrowitz?

  Um, your thoughts?

• 18:28Speaker 02

  Um, yeah, I mean, I agree with what Chris is saying. We are probably not going to have a more understanding entity, you know, than Silicon Valley Bank, the, about the unique needs of tech. When I, when I mean by tech, it just is not just the startups, there is need of the VCs and the LPs and the general partners. And like, there is a wider ecosystem that exists in technology and these guys knew it really well. And yes, you know, many banks have come and tried in the past to replicate what Silicon Valley Bank did, but they never could actually do everything well together, right?

• 19:10Speaker 02

  You know, now you can look back and just say, well, there is something Silicon Valley Bank did do very well, which is run its own bank, which, which is true.

• 19:18Alex Kantrowitz?

  Managed risk might have been one of the weaknesses there.

• 19:20Speaker 02

  Right, right. But when it comes to the actual banking aspect of it, they, the collective services they offered were actually what Silicon Valley needed. And now we are going to have maybe three, four, five, you know, entities do the same thing. I mean, but do I expect the same kind of, you know, personal touch service from JP Morgan? Probably not. Stripe maybe, but like, you know, Giga, I'm raising $500,000 startup capital, probably not, right? So it's just going to be like, the big will get similar kind of services, but they always get those kinds of services. It's the, the little guys who are going to pay the price in the long run.

• 20:06Alex Kantrowitz?

  So another aspect to this, so we're we covered sort of what happens to the bank and the banking from here, which I think is the crucial part of the fallout here. But the other side of this is was I think a very interesting for some people in Silicon Valley, certainly for me as an observer, to see the reaction to what happened Silicon Valley Bank. And I think like my comments on Twitter probably kicked off this discussion a little bit where I talked about how we seem to always be ready to help companies and reticent to help the little people. So we can definitely get to that in a moment, but I'm just curious, were you both surprised at how negative some of the reaction was where people were saying, let it fail and

• 20:49Alex Kantrowitz?

  venture capitalists shouldn't be bailed out? And on top of that, what does it say about the the place of the tech industry in the world right now, where it could literally be on life support here and there be such a political backlash against it that there was a chance that it wouldn't have gotten?

• 21:07Speaker 01

  I guess it's hard to be surprised at any of the opining in our society this today. It's like one of those things where I guess everyone sort of, I guess what's interesting to me is that it's we're sort of on this, this, everything's a proxy for the main discussion between essentially it's populism and both on the right. So we have this horseshoe of everybody in the political extreme is against big business. They're against the rich, they're against, they're for the working man. And it's like, okay, so clearly nobody here in Silicon Valley works according to these people. But what I'm surprised at is how this has affected, say, elected officials. There's a, there's a, you know, supervisors in the city of San Francisco mouthing off on this and they're not saying anything too horrible, but clearly they're, they're, they're not, there's not a lot of sympathy here.

• 21:52Speaker 01

  And yet other folks, Matt Weiner, I would say is someone who actually went out, went to the mound on this stuff, the governor of Utah, people said, hey, This is important. This is something we cannot let fail. And I think that that's that's that was the part of this that was interesting to me was the support of Silicon Valley Bank and the ecosystem we built came from a lot of different places as well as the detractors. And I guess I'm I'm surprised isn't the right word, but I'm a little aghast at the level of knowledge from the press. In particular, business reporters talking about financial things with a clear indication they don't understand how banking works and how people like, well, why did they divide their funds up to in $250,000 chunks? That's

• 22:34Speaker 01

  okay. If you're if you're a left wing housing activist on Twitter. Okay, fine. I don't I don't think that maybe you should know about banking. But if you're a reporter for, say, Forbes, you'd think that you'd actually have to like, understand that companies need to run payroll and payroll is for if you have 100 or 200 people, your payroll is going to be more than $250,000. So I guess I'm a little a little surprised at the level of rancor and lack of sympathy from people who don't understand that the depositors of Silicon Valley Bank represent a lot of people who are not rich. And I guess it comes down to we have this this narrative of the rich. And what does that mean? And I guess I am a little bit, you know, kind of like, I'd like to know who these people think the rich are. Does that mean the coffee shop, you know, a five, you know, coffee

• 23:19Speaker 01

  fills coffee? As last time I checked their VC investment, are they rich? You know, they might they I have no idea where they bank. But what happens if they had, you know, 5 million bucks at Silicon Valley Bank, and you couldn't get a coffee on Monday? What it just for me is, is it kind of blew me away that people think of VCs who get all their money from pension funds and places like Fidelity and stuff like that, where there's this feeling that VCs are rich. Well, maybe VCs individually are rich, but the VC funds are my money, your money, going in from pension funds, universities, endowments. And so there's this, there is a feeling that's like us and them. But the problem here is that the rich, in this case, are all of us. Like, basically, the world depends on businesses

• 24:04Speaker 01

  to employ people to function. And I think folks don't really get that. And that's that's not surprising, but it's kind of disappointing.

• 24:12Speaker 02

  I think to your point, Alex and what Chris said.

• 24:18Speaker 02

  Yeah, some of the, you know, if you're a reporter or a senior correspondent on screen personality on CNBC, you should know finance better than a tech reporter. Let me just say that and like, and that's not really the case. It's like, it is, it was very disappointing to see the dunking going on on tech and, and you know, there's some of it is deserved. Tech hasn't been very, you know, the tech, and I speak, speak in general, in a, in a general terms, like we have not been very good and we're not being very conscious and modest at times and like, and we've let certain voices represent technology who clearly

• 25:01Speaker 02

  lack empathy and any kind of moderation. And so that leads to people viewing, you know, Silicon Valley as all evil. And like, I bet you if the, the bank was called, you know, you know, some city central, you know, and not Silicon Valley Bank, there would be not as much.

• 25:22Speaker 01

  California Family Bank.

• 25:23Speaker 02

  Or like, you know, Arkansas National, there wouldn't be any much, any, any, any, you know, backlash on that.

• 25:29Speaker 01

  Santa Fe Federated would be fine, right? That would be a different.

• 25:33Speaker 02

  Perfectly fine, yeah. And I think we, we talk in like, you know, basically everybody's out to dunk on each other instead of having a civilized conversation. And crises like these need civilized conversations, clear thinking, rational thinking. And, you know, social networks don't promote that. Like, social networks are all about, can I score some cheap points? And like, you know, how many more followers I can get? Can I become like more famous because of that? And maybe I can sell, you know, myself as an expert in the future. And I think that's what, like, you saw that and like, the Monday morning quarterbacking

• 26:12Speaker 02

  on this crisis is another proof of this whole chaos we are in, like about tech itself. And like, and it's like, I was looking at. Etsy can't, you know, take care of its, you know, sellers. Those are not rich people. They are small artisans. They're like probably the people who get impacted the most if their money is not processed. Stripe can't process payments. There are issues in a wider, you know, e-commerce ecosystem. DoorDash did business with Silicon Valley Bank. You know, what if DoorDashers can't get paid? Like, you know, you just start to compute. The Valley is not just a few billionaires. There's a lot of people out here.

• 26:57Speaker 02

  And that, you know, from landscape artists to people who are making coffee or people who own coffee shops or, I mean, there's a lot of people who depend on the tech ecosystem, right? And who are not in tech, but they're tech adjacent. And I think just it's really hard to kind of internalize like, wow, that is just some serious ranker for, for people, like depositors. Not, you know, you can dunk as much you want on rich people, but like depositors are like normal people who create employment for other people who create employment.

• 27:35Alex Kantrowitz?

  But let me, let me see if I could channel the rage appropriately just to set it up for you guys to react to. I think that the people who were saying, let it fail, or for some whatever reason, you know, saying we shouldn't be bailing out VCs. Obviously, that was an emotional response and Twitter, for instance, promotes the circulation of emotional response, which is why we saw them highlighted so often over the weekend. But the thing is, I think what the people would say that they were really reacting to them was that the tech companies have taken a lot of the value, um, you know, out of the, out of the economy that would have otherwise gone to these, you know, artisans with Etsy, for instance, or these delivery people with DoorDash who, you know, aren't making a tremendous amount of money.

• 28:20Alex Kantrowitz?

  And it seems like what, what, this is what people are rebelling against is they're, they've started to view Silicon Valley as a, in some ways, a, a...

• 28:33Alex Kantrowitz?

  Industry that puts tech architecture on top of labor or on top of like the regular folks and sucks out all the value. And you can see this with like something like an Amazon, for instance, where you're if you're an Amazon, a delivery driver or fulfillment center worker, you have tech that's basically ensuring that like you're packing bags till your legs are blue. And I think that's what the reaction was against not necessarily the fact that they didn't want DoorDashers to get paid. So that I'm curious to get you both to react to that. And, and, you know, on a deeper level, what is it? What does it say about Silicon Valley that that's the image that many have?

• 29:08Speaker 01

  I think that there's a you make a good point. And I think that one is that the amount of the one of the problems about is tech is what people with their their general interface. It's Amazon, it's Google, it's Facebook. They forget that it's also Apple and, you know, Microsoft Office and every single device that you buy. I think that one thing from a messaging standpoint, if there was a Silicon Valley marketing department, and I hope if I was running it, it'd be like, hey, we need to make sure people understand it's like intel inside, right? Like, it turns out that Silicon Silicon Valley builds a lot of things. And if you if you are a farmer, and you actually have some sort of imaging to figure out where you should put your seeds, chances are there was Silicon Valley company somewhere in that

• 29:51Speaker 01

  mix. And I think that there's a lot that's that to that point, I think that Silicon Valley is a lot more than the consumer facing applications or Uber and DoorDash and so forth. So I think that's, that's a point. I also think, I mean, to holding us to task, I think there's a there's an aspect of this, which is, I didn't see much in the I think Gary Tan, I thought, did a relatively good job, Y Combinator guy, and also Bro SF guy. There are a couple other people. But the sort of the a lot of loud mouths were speaking a lot. But I didn't see Tim Cook say anything? I didn't see whoever's running Amazon these days say anything. I didn't see, you know, the CEO of Microsoft say anything.

• 30:33Speaker 01

  I would have liked to see Apple, Microsoft, Amazon, Google and Meta all get together and have, here's what's going to happen. I didn't see the JP Morgan moment or some of the, some of the bigger VCs. I mean, I would have liked to see some leadership from the larger tech companies who have these balance sheet and some of, so this is something that left, some, some leftists did bring up. It goes, hey, there's all these huge, like, you know, country level balance sheets from some of these places. It would have been nice to have some of that being brought to bear. So I do think, I was a little surprised that no one took the opportunity to show some leadership in that standpoint. But the ranker on this saying Silicon Valley is awful. Yeah, we need to message this better. Um, that's something that I think is, it's, it's a real thing.

• 31:15Speaker 01

  We should, we should, that is on Silicon Valley to, to like present itself more appropriately and not let a couple of way, way out the door libertarians represent, um, represent us, even if some of that's true, right?

• 31:33Speaker 02

  Well, I think so a lot of it went unreported, right? Like a lot of the work which is, was done, the leadership came from people who were not on Twitter. All the behind the scene work which happened, I, you know, I've been, I was privy to pretty a lot of emails and a lot of conversations. And, you know, like Chris, like I emailed some of the, the big names in the valley and I said, hey, you need to calm the waters here a little bit. Like this is not, this is a crisis moment and we need grownups to, to step in. And they were all working on trying to solve the problem, not making statements on Twitter. So like I said, there is not, one, tech is not just one thing, right?

• 32:18Speaker 02

  Like there is a lot of people who, who represent tech and are part of the tech fabric and, you know, it's like. I think Chris probably would, you know, thinks less of me because I'm always talking about like, you know, data Darwinism and the challenges of like, you know, tech basically being making, you know, a lot of portions of our society, you know, less relevant. And, and the reason for that is because that's what technology does. It's always been doing that. Like, you know, you know, Detroit like started making cars and it took, it extracted a lot of value out of workers then. I just think, you know, sometimes when we think about

• 33:01Speaker 02

  technology is we only think about value extraction. We don't think about value addition. And that is because if you were to talk about value addition, that would be a positive story. Positive stories don't get any attention. No one cares. People want, you know, if it bleeds, it leads. That, this is it. You know, we live in a New York Post headline world right now. And sadly, the, all the good things which happened in tech are never talked about. Will never be talked about. All these people who did all the work and behind the scenes, none of them would be talked about. None of them.

• 33:38Alex Kantrowitz?

  Well, this is why, this is why I like podcasts, because we do have this opportunity to go deeper and talk about some of the criticisms and some of the nuance. So, I mean, as much as you can share, what, what did happen behind the scenes?

• 33:50Speaker 02

  People understood the, the scale of complexity and the problem we had. And people reached out to elected officials, senior officials in the, at the Fed, at the Treasury, to actually reinforce the point that tech is key part of the American ecosystem, economy. Like, this is one area where the country leads and like leads by a wide margin. And it is part of the, you know, like the edge we have over the rest of the planet for now. And, and like, just to think how big a problem it could have been if there was no payroll

• 34:31Speaker 02

  today or tomorrow. Just imagine that. That's like, you know, forty, fifty thousand companies without the ability to make payroll. Like, that just is not, you know, like, that's so un-American, in my opinion.

• 34:47Speaker 01

  One other thing that I think it's reasonable to to praise is the FDIC. I mean, the thing is, it did make me proud to be an American, but we did fix this on Sunday night. You know, the FDIC came in and said, yeah, we're going to do these things. And I understand why it takes a couple of days. There's mechanisms here. It's not just promising the money. It's like, here's this big thing, the money's going to come from here. Here's how new other banks are not going to be subject to this. And here's how we're going to create, you know, prevent moral hazard because we have some criteria that you can't just buy a bank with a bunch of under par securities and trade them back to the government. Here's what you have to have done. I mean, I think that that is phenomenal. And this is why we are, you know, the United States of America is able to lead the world because we can actually stabilize a massive problem like this.

• 35:32Speaker 01

  And it's fantastic. And it's like, I will say this, that, I don't know, I'm, I'm, I'm a center right, you know, Reagan Republican, but I want there to be some government to do things. And when like defending, defending the depositors at this, at the bank for technology seems like a good thing for us to do. And we did, and we're capable of it. And the FDIC did that over a weekend. So, yeah, fantastic. And it's just, it's really impressive. So, points to that.

• 36:00Speaker 02

  Yeah. And also, like, you know, I mean, I grew up in a very different country than the two of you. And I know what weak bank institutions are. I know what it means that not to have trust in a bank. I just know, right? Like, I mean, my grandmother put her money in a trunk and there was a big fat brass lock. And that's how you, you know, you ensured that your money didn't vanish because the bank guys, like, you know, did something stupid. And so, the fact that we have laws, we have institutions, we have FDIC, I think the system worked. The question is much broader. I think there is a much broader financial question, not, not the question, this, like,

• 36:46Speaker 02

  when I write about, when I wrote about the situation, I was only thinking about startups, depositors, and the ecosystem that depends on that. Like, There is a wider issue in the financial, you know, at the financial scale, in the financial market, at the government scale. I don't, I'm not equipped to address that. I'm just was talking purely from this one aspect. And, you know, I'm glad they came through because it, the, the, otherwise the options were pretty terrible for us.

• 37:18Alex Kantrowitz?

  We're here on Big Technology Podcast, talking about the fallout from the failure of Silicon Valley Bank. We're joined, of course, by Omer Malik, a former tech journalist and a partner emeritus at True Ventures, and Chris Tols, the former CEO of Topics and a Silicon Valley executive. When we come back, I want to talk a little bit about the role of VCs in all of this, and a little bit more about how we might be able to fix our financial system so we don't have another situation like this. Back right after this. This episode is brought to you by AppPoint. Everyone's racing to roll out AI right now. Co-pilots, chatbots, agents doing real work. But here's the part nobody loves talking about. All that AI runs on your data, and most teams have no single way to see it, secure it,

• 38:02Alex Kantrowitz?

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• 39:51Alex Kantrowitz?

  And we're back here on Big Technology Podcast, talking about the fallout from the failure of Silicon Valley Bank. Joined by Chris Toles, the former CEO of Topics, and Omalik, partner emeritus at True Ventures. I just got to ask you guys the question because, you know, VCs have been, you know, very loud and taking the money out and then asking for the bailout. And there was a tweet that I read about this that I kind of thought was interesting where, this is from, I think, who's, his name is Midtown Rob on Twitter. Midtown Rob, he said, "VCs doing a bank run, then crying and pleading to be bailed out. They're encouraging their 100s of thousands of followers to panic, then jerking each other off for stopping a bank crisis."

• 40:35Alex Kantrowitz?

  And is one of the most embarrassing displays I've ever seen. So I'm kind of curious what you guys think about that. But mostly like, the serious issue there, of course, is like,

• 40:47Alex Kantrowitz?

  was there an issue here where like, you know, VCs pushed too hard to move people out of Silicon Valley Bank and then sort of left it at the mercy, you know, of the government stepping in in order to save the tech industry?

• 40:59Speaker 01

  That's, that's sort of... There's different stages of this, right? There are a couple of people who seem to be leading the charge on on this very early, which which it instead of necessarily getting your your your your portfolio companies to take all their money out, that would have been an area for some leadership to basically go, hey, this is looking really problematic. Let's actually address this in a different way. That didn't happen with the VC community, and I think that's actually a shame. And I think that's a that's a reasonable knock. Once there's a bank run going on, the problem is, once the herd is moving, it's very difficult to stand your stand your ground at that point in time. It's sort of at some point in time, like, what do you tell your portfolio companies when there's three hours to get your money out? Because maybe it won't be there.

• 41:45Speaker 01

  I I'm sympathetic to that, too. That's that's a difficult one.

• 41:49Speaker 01

  But I think a lot of people were knocked for their stances on other things, like people who are super libertarian and talking about bailouts being problematic and then coming in and saying, well, except for us. I don't know if that's true, though, of that many people. I don't I'm not I don't think there's a fair enough. There's not that many VCs out there who are squawking about the bailouts in in in Wall Street in 2008, saying they were terrible, or talking about all the PPP loans and and saying that they were terrible. There are a few. And to some degree, it's like, yeah, OK, there's a lot of mouths on every on every on every in every industry. But, yeah, I think that there's a there's a there's a knock on the VC community for not maybe working prior to this happening.

• 42:31Speaker 01

  And then down the road, maybe a little bit of hubris would wouldn't be out of order here. You thought so?

• 42:39Speaker 02

  Uh, you know, I I'll double click on that.

• 42:44Speaker 02

  Sometimes, you know, you don't have to repeat what's been said so well. I I think the it's just an interesting, slow motion. This is like a like, slow motion wreck in many in many ways. Like, people took proactive action to move out their portfolio companies into, you know, into other institutions. And then the news got out or people decided that this was worthy of worthy of amplifying it into news. And then the Silicon Valley grape wine kicked in. And then, like, everybody said, damn, I need to get out of here, too. And I think that. Panic is, panic is a big disease, man. Fear, when, when fear sets in,

• 43:30Speaker 02

  you can't stop anyone. And that's exactly what it is. As far as leadership in the valley is concerned, like after the fact, leadership was pretty strong. Before that, probably not as much.

• 43:43Alex Kantrowitz?

  I gotta bring this up. I'm not sure if this is, I mean, I'm not saying this happened, but hey, since we're here to like throw out a lot of stuff and kind of talk about it, might as well.

• 43:53Alex Kantrowitz?

  There's been some talk that some VCs were trying to, you know, intentionally make this happen so it could benefit some of their portfolio companies. I was with the founder today talking about how he had all of his company's money in Silicon Valley Bank and moved it to Brex afterwards, after he got it, access to it on Monday. And of course, Brex is funded, I believe, by Peter Thiel, who encouraged all of his companies to leave. Do you guys see? I mean, I know it's like definitely like ranging into conspiracy theory territory, but you know, again, like this is what like is good of a pod, for a podcast is you can ask these questions and have reasonable responses to it. Do you see any, anything like that happening here? Or is that kind of just so out there that is not worth considering?

• 44:36Speaker 01

  It seems kind of out there, but if there was one guy who was going to be that way, it'd be Peter Thiel, right? I have no information on this, but it's like, okay, so the Bond villain is being accused of something. Well, you know, he did spend 10 years trying to go after Gawker. So you gotta go, oh, maybe. But I don't think it was like a widespread, I cannot imagine it's a widespread thing. And I cannot imagine that that the potential of a, of a bank run was necessarily in anybody's mind at that point in time. So I, I, I think that's, that's a little out there. Although again, great, great villain to, to, to, to have there. If you're going to have Darth Vader, it's going to be Peter. So yeah.

• 45:12Speaker 02

  Okay. I don't want to come off as the guy who defends Peter Thiel, just like, just to be clear. But if he wanted companies to move into Brex, he could have easily made a precondition. You take my money, you have to put money in Brex. Like, you know, you can always think about conspiracy theories. They may, they're definitely more fun. They make life more interesting, but you know, but they're not necessarily true, or are they? I don't know. But like, when I think about it, like, Why wouldn't you just tell companies, you know, here is my 10 million dollars, you just have to bank with Brex. It's much easier.

• 45:51Speaker 01

  There is a thing too about, I, I do, a banker friend of mine said, hey, some of these people, if you're, if you're worth, if you are a billionaire, it may be that one, just you should be more responsible about what you say in public. And some of these people, again, I don't have anybody in particular that are going to point fingers at, I actually don't. I can't think of anybody who was that terrible, but, but you should be, if you, you, people can cause bank runs by mouthing off on Twitter. And maybe, uh, I actually wouldn't have a, it's, I, I think it might be amusing to at least have the debate whether if you're a billionaire, you actually have a, you have an SEC. Like, it turns out you just can't say as much. So your freedom of speech is constrained if you become a billionaire by, by the fact that the government will take all your money if you, uh, if you mouth off about a bank run.

• 46:34Speaker 01

  I think that might be okay. Maybe we should have a constraint of freedom of speech where it's like, the government will be like, well, of course, if you cause a bank run, we're going to take all your money. So don't do that. Because bank runs are funny, like you can't, they are caused by people doing them. It's not a thing like, it wasn't a given, like

• 46:51Speaker 01

  Silicon Valley Bank balance sheet could be, could be problematic and they could have worked it through and they could have muddled through had there had been a variety of things to happen other than a bank run. So that is a, it's a challenge because if you all get together and say there's going to be a bank run, there's going to be a bank run. So what do you do? Again, I think to home's point, the, the leadership before this happened was lacking and that's, that's a fair knock on our community.

• 47:16Speaker 02

  Yeah, I think that has been out there for three months. It's not like recent, like since January, there have been people who have written articles, like more recently Financial Times had a big column about it. And even their conclusion was, oh, it's not really that big a problem. I was like, then why are you bringing it up? Right? Like, and then, but that creates like this sense of like, you know, we gotta do something about it. And if you're a, if you're an investor or you're a big VC fund, you actually do the prudent thing and just tell your companies to move your money out of this risky situation. Like I, you know, I'm not trying to defend anyone here, but I'm also just saying like, I'm not, I don't think there are like spies behind every pillar.

• 48:03Speaker 02

  Or maybe there are.

• 48:05Alex Kantrowitz?

  Okay, that's that's interesting. So we should talk about regulation. I feel like.

• 48:11Speaker 02

  I just was being a reporter for a minute, you know, like covering both, talking from both sides of my mouth.

• 48:17Alex Kantrowitz?

  Hey, look, welcome to the club. Doesn't it feel back to be back on the old horseman? No.

• 48:24Speaker 02

  I'll let you win that one.

• 48:27Alex Kantrowitz?

  So we should talk about regulation, right? Because that was something that a lot of people pointed out. You know, we've talked a little bit about the libertarian nature of Silicon Valley and, you know, correct me if I'm wrong here, but didn't Silicon Valley Bank also lobby to have some of the restrictions taken off of the bank after Dodd-Frank?

• 48:46Speaker 01

  All of us have our weekend of of our mini MBA and running the banking system. All of us are now regulatory experts, right? But I did talk to a banker, I talked to a banker friend of mine who actually has been lecturing me for 25 years on this stuff and who's always like, I told you so. And and she gave me the like this, like, there's a couple of things. One is industry concentration. So in other words, the next tier of banks down from the big, the big banks that got the Dodd-Frank stuff.

• 49:13Speaker 01

  They didn't get, they didn't get those kinds of margin requirements and silver sphere point. Silicon Valley Bank did lobby for that. That being said, it'd be better if the regulators hadn't caved. So there's a little bit of that. Yes, they kind of got their just desserts. Now, that guy lost all of his money. He, he, he lost his equity. He, those guy, he is definitely at his punishment and unfortunately brought everything else down with him. It would have been better for us to, for the regulators to have regulated. The other thing is, to your point, it's been around for three months. It could have been, I think, interest rates rose faster in the last six months than they have in the last 40 years. Like there, this is not a common thing, like the fact that interest rates are five points up is a big deal. It also could have been nice to have the regulators go into the

• 49:56Speaker 01

  into all the banks, like the next tier of banks down from the large ones and say, hey. You know, it's possible that we're going to raise interest rates a lot. You might want to think about that. And by the way, the thing they set up just recently, which is to buy to buy assets on par. That's essentially one of the things that just happened is that a lot of people were required. Like Silicon Valley Bank was also regulated to only be able to invest in things that were like government securities. And so, you know, I'm not sure if there was a government security that you could have bought that would not be affected by interest rates in this way. But it's kind of a self fulfilling prophecy. Now, my banker friend said, hey, there shouldn't be banks like Silicon Valley Bank. They're too concentrated. They should have gone off and either bought another bank or get bought by a bank. And I don't think that's necessarily great advice, but I do think that they could have, the regulators,

• 50:42Speaker 01

  they, they missed and Silicon Valley Bank was part of that, but maybe some adult in the room should have said, hey, turns out that these banks are going to be

• 50:53Speaker 01

  liable for this, or they're, they're, they're looking at this being really risky. So this combination of things I think was, was not done right. And I think the federal, the FDIC and the Fed have now gone a long way towards ameliorating that by taking these, these assets that are, that are losing money because of the interest rate hikes that the government has done themselves and trying to give them something to do here by buying them back at par or dealing with it.

• 51:15Speaker 02

  I am no banking expert, so no comment. I'll let Chris make a better explanation. Yeah, yeah, but like, you know, Twitter is full of experts, man. You could pick any one of them and bring them on your podcast. But the fact remains that for now, we've averted a crisis in our ecosystem. That's like, let's not lose sight of that. That is, the innovation continues. People are getting paid. You know, people will be able to, you know, pay their bills. Things carry on and they go forward. What happens, everything around it, you know, you know, the after the, after the crisis, you know,

• 51:58Speaker 02

  analysis or, you know, the regulation, whatever it might be. I think we need to really carefully think this through and like how this happens. You know, in, in the future, how do we deal with these things? Man, I can tell you, let's bring this down to what at a human level, right? Like at a human level, the cost of this failure would have been too high. Just too high and it's it should not be allowed in an advanced economy like America. It's not a banana republic and and I think we cannot lose sight of that like just, you know, all the criticism, all the stupidity, everything aside, just, just, you know,

• 52:42Speaker 02

  focus on the fact that we actually had a crisis which affected real people with people who put real money and who had real money in in in Silicon Valley Bank. I think that is the crux of the matter.

• 52:57Speaker 01

  But the thing is that a lot of people are like, well, why don't we talk about the regulation thing? I mean, just the need for regulation and it does seem like, you know what I'm saying? Like, it's easy to say we don't know exactly what the regulations are, but people are saying, okay, Silicon Valley is pretty anti-regulation, so shouldn't there be shouldn't there be a law of louder contingent asking for them to make sure that this doesn't happen again?

• 53:20Speaker 02

  That's not true. Sam Altman is the guy who says, you know, we need to have some kind of regulation. You know, we definitely need a data policy. We need to have privacy policy. The government doesn't do things about those things. I mean, and when I say government doesn't do anything about those issues, you know, so no one in the valley is saying let's have no policy. Just because a few libertarians said that that's how it should be, that is not necessarily the valley view. That's not necessarily the tech view. And I think that is a bigger problem. Like, we decided that these libertarians are the tech view, and that's not actually true. Like, it's absolutely not true. You know, even people on the center right don't think that crazily.

• 54:03Speaker 01

  Yeah, I'm with Omen this way. It it's like there is a middle ground in regulation, and I don't think that people in the valley are are the majority of people who run companies aren't like, I don't want, I want to live in a world without regulation. I don't think Silicon Valley Bank, I mean, Silicon Valley Bank certainly did wanted to have a a looser regulatory framework than probably was optimal, but the guy didn't say, I want to be a crypto bank. I mean, he basically, they they didn't, they weren't crazy. They were, they just were trying to get out of, but I I think that the regulation here failed us, um, or the lack of regulation failed us. But I think those are reasonable conversations and one of the, one of the issues here is that it's where we've got this extremity of viewpoints that are what you hear, but I don't think most people who are running companies are not.

• 54:47Speaker 01

  They don't, they, they wanna have just sensible regulations and they want, and I think that you can see places where maybe the regulation's gone too far. Try to build a house in San Francisco and it's worse than other neighboring communities. So it's, there is a middle ground. And it's a tricky one because it's an optimization, not a maximization. It's not no regulations. It's not let's regulate everything to death. It's trying to figure this out. And that's something that it'd be nicer if there are more adults in the room on those discussions as opposed to listening to the libertarians or, or the people who are, you know, Robert Reich and saying that we should re-regulate the airline industry.

• 55:21Speaker 02

  I think you, you, we are at a point in society and in tech and intersection of tech and society is that we actually need to think about these things in a very nuanced fashion. Like, there is no putting the genie in, back in the bottle. Like, tech exists, AI exists, data-driven, you know, decision-making exists. Privacy is a challenge. It exists. How do you deal with it? It's time to have very serious nuanced conversations. When you see, like, as on, you know, I'm not naming, let's say the FTC decides that no merger should happen. Like, why? Like, that's how the ecosystem works. Like, not every company

• 56:05Speaker 02

  needs, you know, you know, like, to exist as a standalone company, they need to be part of something else. Like, if you start legislating through dictat, then that's also not very good, right? Like, it's, it's the exact opposite argument of the libertarian argument. It's like, so it's time to kind of like, just find that middle ground. Like, whether you're on center-left or you're on center-right, it doesn't matter. Like, we just need to understand this is the reality of today. The tech is the reality of today. AI is the reality of tomorrow. Let's get ahead of these problems before they become like gigantic problems. And like, and that is not possible if you speak in tweets. I'm

• 56:50Speaker 02

  sorry, like, you know, the world speaks in tweets. Politicians speak in tweets. You know, the libertarian speaks in tweets. And like, everybody is talking. Like, they just need to score points off each other. Like, all politicians, all parties. It's just like insane that we don't take the time to actually sit down and figure out what is the world we want to build in next 25 years. The Chinese are thinking about those things. Trust me, they have their policies right and we are not even thinking about it. We're just shouting at each other all the time. And that's across the board, regardless of what political spectrum you're on.

• 57:29Alex Kantrowitz?

  Well, look, Omen, Chris, I agree with both of you that we do need more of these nuanced conversations. And I'm glad we're here having what I hope is one today. So I know this kicked off with me speaking in tweets, but I appreciate you both coming in and taking the time and being thoughtful and breaking down what happened, what's going to happen and, you know, maybe knocking down or, you know, examining a conspiracy theory or two in the process. So thank you both for coming on and I hope we do this again.

• 57:56Speaker 02

  Alex, just before we go, one small point, like I'm very full of emotion right now because this has been emotional three days as I've been in part of the tech ecosystem for three decades. And this has been an emotionally challenging time. I think people don't understand how difficult it has been. And so I think if there is one thing you can do through your work is actually make people understand. We need to talk about important issues and in a way that is not screaming, but more constructive. And, you know, maybe this is an occasion, the Silicon Valley Bank

• 58:36Speaker 02

  has died to give us a chance to do something better in the future. And that's how I feel.

• 58:46Alex Kantrowitz?

  Yeah, I couldn't agree more. Well, thank you both for coming on. It's been a pleasure speaking with you. Thanks, Omen, Chris.

• 58:52Speaker 02

  Thank you, Alex, for having us. Great. Thanks, Alex. Always a pleasure.

• 58:57Alex Kantrowitz?

  And that'll do it for us here on Big Technology Podcast. Thank you, Omen, and thank you, Chris, so much for joining. Really appreciate your insight. Thank you, LinkedIn, for having me as part of your podcast network. Thank you, Nick Goatney, for handling the audio on such a short turnaround. Really appreciate it. And thanks to all of you for listening. Really appreciate you coming here, especially for the coverage of Silicon Valley Bank. We've seen definitely an uptick over the past week or so. And look, I want to bring you the more nuanced conversations or the most nuanced conversations you're going to find about stuff in the tech world so that you'll be able to walk away more informed and more engaged and hopefully, you know, ready to come to work. Into your lives, really, knowing, knowing what's going on in a way that's unvarnished

• 59:40Alex Kantrowitz?

  and, and really gets to the heart of the matter in ways that few other shows do. So, thank you for listening, I appreciate it. All right, we will be back Friday with a new show. Rajan Roy will be back, we're gonna have to talk a little bit more about the bank and also other issues in the tech industry. And then stay tuned, next week, I'm gonna play my interview with Kevin Systrom, we spoke at South by Southwest this week, and I'm very eager to run that one for you. All right, that'll do it for us here. We will see you next time on Big Technology Podcast.

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• 1:01:00Speaker 04

  Shwing!

• 1:01:01Speaker 05

  Even our news is uplifting.

• 1:01:02Alex Kantrowitz?

  You stay classy, San Diego.

• 1:01:04Speaker 05

  Watch School of Rock, Crazy Ex-Girlfriend, Anchorman: The Legend of Ron Burgundy, The X-Files, Wayne's World, and so much more.

• 1:01:09Speaker 04

  We're not worthy!

• 1:01:11Speaker 05

  The best things on TV really are free. You just have to know where to look. Escape to Pluto TV. Stream now, pay never.