With the bailout of Silicon Valley Bank (SVB) it appears that the bank could once again be used for the mission for which it was created some years ago: lending to smaller, entrepreneurial companies that wouldn’t be considered by other banks.
SVB was set up about 30 years ago to make such loans. For example, I had a software client who was one of the first to do console video games. He had a purchase order from WalMart for his new games (they had previously bought his older games, and they sold well), but the client needed financing for development and production of the games. At the time, Phoenix banks weren’t lending for this purpose.
So, based on the advice of Sequoia Capital of San Francisco, we talked to SVB. After looking over the relevant documents, and installing a few guidelines to ensure the loan was properly spent, SVB made the loan and the games got developed and produced..
Somehow, probably over a period of years, SVB strayed from its original mission of entrepreneurial lending, and became more like the bank of the Democratic Party, making large donations to Democratic causes.
SVB did back some very worthwhile companies in the intervening years but imagine what more they could have done if they had stayed with their original mission, lending to all entrepreneurial companies, even startups.
By the way, SVB should also have advised its clients when their deposits went past the $250,000 insured limit. And the company CFOs should have realized it, too. As for payroll, when it’s done, money is moved from accounts to cover the disbursement, whether the company or a processing service does payroll, so this in a specious argument for keeping large cash balances in accounts.
SVB should once again bring in some bankers, not just some wokers, and go back to its original mission of providing entrepreneurial capital.
SVB’s capital structure is now apparently sound, and proper managing of loans to maturity limits, and a higher loan to asset ratio, will bring other ratios into line. Proper management and supervision by the San Francisco Federal Reserve should ensure that all remains well.
Sure, the brand name has been tarnished by some of the recent shenanigans, but if entrepreneurial companies feel that they got fair treatment from SVB in their loan negotiations, word will get around and the bank’s reputation will slowly be rebuilt.
Bottom line: don’t throw the baby out with the bathwater of past misdeeds.