VC Ryan Falvey blames VCs for 2nd biggest-ever bank failure happening in just 48 hours

This was a hysteria-induced bank run caused by VCs. This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face.

Hugh Sohn at CNBC has been doing a great job covering the SVB bank failure fallout. His latest today has a great quote from fintech venture capitalist Ryan Falvey, above.

Here is what Ryan and his partners at Restive Ventures told the companies they back about how to approach the Silicon Valley Bank failure. This is a good letter in a very difficult situation for everyone involved.

Ryan Falvey of Restive Ventures memo to companies they back on how to handle the Silicon Valley Bank fallout - The Basis Point

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Here are excerpts featuring Ryan from the CNBC piece:

“This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a fintech investor of Restive Ventures, told CNBC. “This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face.”

Falvey, a former SVB employee who launched his own fund in 2018, pointed to the highly interconnected nature of the tech investing community as a key reason for the bank’s sudden demise. Prominent funds including Union Square Ventures and Coatue Management blasted emails to their entire rosters of startups in recent days, instructing them to pull funds out of SVB on concerns of a bank run. Social media only heightened the panic, he noted.

“When you say, ‘Hey, get your deposits out, this thing is gonna fail,’ that’s like yelling fire in a crowded theater,” Falvey said. “It’s a self-fulfilling prophecy.”

Falvey, who started his career at Wells Fargo and consulted for a bank that was seized during the financial crisis, said that his analysis of SVB’s mid-quarter update gave him confidence. The bank was well capitalized and could make all depositors whole, he said. He even counseled his portfolio companies to keep their funds at SVB as rumors swirled.

Now, thanks to the bank run that ended in SVB’s seizure, those who remained with SVB face an uncertain timeline for retrieving their money. While insured deposits are expected to be quickly available, the lion’s share of deposits held by SVB were uninsured, and its unclear when they will free up.

Here’s the CNBC piece, and also a link to Ryan’s VC firm.

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Reference:

– How 2nd-biggest bank collapse in U.S. history happened in just 48 hours

– Ryan Falvey’s fintech-specialist VC firm Restive Ventures