The fall of SVB and the Story of Silicon Valley Recapitalization Fund, L.P.
Or - How I tried to save Silicon Valley all on my own
It was a wild 3 days. I'm a former Founder (Omnivore.io) and was deeply entrenched in the SF/SV startup world for 10 years. I was horrified Thursday night at the prospect of SVB going under and knew all the primary and secondary effects that would have on the bay area as well as directly on startups. Hundreds of billions of dollars of investments hung upon those startups having access to capital. I got up early and watched the stock plummet until it was halted. I immediately knew they were done for.
I also immediately knew that startups would need access to capital and fast. They have daily cash needs as well as things like payroll which if they don't pay on time causes issues with CA labor law which can require furloughing or firing of employees and even trigger personal liability of directors and officers for payment, something I knew most founders would not want to expose themselves to and probably had no idea they would be required to do. I have dozens of CEO/founder friends who were panicking and as someone with a lot of HNW, PE, and VC connections, I knew I had to do something.
I recognized that the deposits were tradable assets that we could either purchase or loan against. So first, I reached out to some large HNWs and funds. There was appetite to buy up or lend out against these assets at a discount. Then I reached out to founders. They were willing to consider, if not ready to commit, to take a haircut against their cash if it meant they could continue operations. They realized it was either life or death.
So I went to work. Over Saturday, I mostly spent the entire day raising capital. By the end of the day I had around $300mm committed. Sunday, I went to work talking to Brian McDanial (fantastic attorney) at Wilson Sonsini figuring out exactly how to structure the fund, set it up at lightning speed, buy the assets, etc.. He said we could get everything going and start deploying capital by Tuesday. I also started reaching out to CEOs and making plans to buy up assets. By then, word was out that FDIC was going to probably quickly recover assets and soon enough, word that SVB was going to be bought and then bailed out so interest quickly faded.
My fund’s overriding goals were two-fold:
We wanted to provide a private sector solution to a private sector problem. We didn't think government was going to step in.
We were entrepreneurs saving startups and jobs. Not trying to make a profit off a bad situation. Hedge funds and banks were offering MUCH worse terms than we were since they were acting like vultures where we were acting in good faith trying to save the ecosystem, not make a large profit off of it.
In the end, by mid-day Sunday, the fund had grown to $400mm, but everyone started taking a wait and see approach, and the government bailed SVB depositors out. So now, no one is going to do anything.
But I'm extremely proud of how many companies and jobs we could have saved with just 2-3 days of work with a private sector solution. I know the challenges of being a CEO and it's hard enough without worrying if your bank collapses. I genuinely wanted to help my friends and others save their companies and their employees' jobs, and we would have been able to save a great number of both.
It was a fantastically fun experience and I made some great connections. Shame it won't be executed and I'm glad Silicon Valley will live to see another day. But boy would it have been fun.