The SVB Failure Test
How your firm’s senior partners reacted over the SVB debacle is quite revealing.
There’s no need to recount introductory context on Silicon Valley Bank’s failure and its ripple effect across the VC and startup ecosystem. Of course there are many lessons from the episode which apply to all venture capitalists, though their direct application might come later in one’s career as a GP (…like we’re all treasury management experts now).
However, I’ve increasingly come to recognize what senior partners did and said over that crazy weekend in March with the apex of uncertainty unveils a lot about who they are. It shined a bright light on how they view you as their firm’s junior investment professionals, as well as revealed how they approach their role within the ecosystem with all of their relationships including portfolio founders, limited partner investors, employees, other direct constituents, and the broader community. In some ways, the SVB disaster was all just a test for senior partners to inadvertently reveal their hand. For example:
First off, were your firm’s partner completely silent with the junior staff from the beginning of the bank run Thursday until Sunday night when the FDIC protected all depositors? Of course, the priorities were rightfully elsewhere, but a complete lack of communication demonstrates the relative importance (or lack thereof) of the other professionals within the firm. From the outside in, it could have looked like the world was crashing down, but at least acknowledging the situation speaks volumes more than what was literally actually said.
Even more interestingly, did they actually rise to the occasion? For example, I am aware of at least one firm which directly communicated that they would personally fund all of their entire staff’s salaries from their own personal accounts until the situation was resolved. Many VCs were tirelessly working over those few days with portfolio CEOs constructing alternative paths to make the upcoming payroll for their employees. Those are just a couple of the many ways some folks stepped up.
Did your firm’s partners have an information session or even a post-mortem wrap-up conversation where they addressed the elephant in the room with their entire team - does the firm bank with SVB and how bad was the crisis potentially going to be? If not a session with a broader audience, were the partners open and forthcoming about questions in one-on-one conversations afterward? Or maybe in contrast there was an attempt for everything to revert back to “normal” as if nothing had ever happened.
Did you partners take a leadership role in their dialog with the firm’s limited partner investors? How nervous were the partners in those interactions and does that say something about their own confidence in their fund and LP relationships? Did the partnership drive the strategy and communication or it let the tail wag the dog and seem to bend over backward to do what uncertain LPs dictated?
Do you believe that your firm helped contribute to the panic, in either word or deed? How do you feel about the nature and the tone of the communications which were shared with portfolio companies and limited partner investors, if you were privy to them? There isn’t uniform consensus on how everyone “should have” reacted, but it’s important to understand if your firm acted in a way congruent with your own perspective and values.
Did your firm’s partners say one thing and yet act differently? Above all else, was their talk and visible actions prioritizing themselves above others around them?
When I was a mid-level vice president at my previous firm, the Global Financial Crisis hit its peak during the middle of my tenure. While I am sure there was fear, doubt, and uncertainty behind the scenes of the firm’s leaders… I recall especially the elder senior managing partners projecting to the entire investment staff a calming perspective, as well as confidence balanced with humility and transparency. It has resonated with me ever since how that reassurance about working at a firm which was going to endure provided comfort during those unsettling days with rumors swirling of LPs risking abandoning their capital calls, possible widespread VC layoffs, and even the stability of our country’s economic system itself.
In tough times, true character is revealed. That weekend in March was one of the worst we’ve seen a while. Did you like what you saw?