The SVB-sized hole in Silicon Valley  

Did you hear that giant whooshing sound? That was the collective exhale of tens of thousands of startup founders, workers and investors after federal regulators assured customers of the failed Silicon Valley Bank that they would have access to all of their deposits.

Most of the bank’s 40,000 customers are tech startups, which spent much of the weekend bracing for the worst: that their money would be tied up or lost in what one online commentator forecast as an “extinction level event” for startups.

Now that catastrophic failure is no longer imminent and the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. are guaranteeing deposits, there’s still an SVB-sized hole in the tech landscape, according to Natasha Mascarenhas. She’s a senior reporter at TechCrunch and she spoke to Marketplace’s Meghan McCarty Carino about how this one bank became so embedded in the startup scene.

Below is an edited transcript of their conversation.

Natasha Mascarenhas: Banks aren’t risky institutions. And Silicon Valley Bank had a decades and decadeslong reputation of being more comfortable working with startup founders. They were comfortable lending money to these people who are typically considered risky for more traditional lenders who are not comfortable with companies or institutions that didn’t have assets or cash flow. We often see companies only hit profitability at a late stage, and even once they’re public, they might not yet be profitable. So SVB really got to a place where it was this trusted partner. They were at one point banking more than half of all U.S. venture-backed startups, just to give a sense of scale.

Meghan McCarty Carino: When we think of the scope of companies involved here, people often think Silicon Valley is just tech startups and companies that make apps. Give me a sense of the actual scope of companies affected.  

Mascarenhas: Within tech itself, I think there has been so much broadening of how mission-based tech companies can be. I like to say that Silicon Valley Bank, despite its name, impacted so much more than just Silicon Valley. There were affordable housing projects that were being questioned. Napa Valley’s wineries and the thousands of employees that they employ were being put under stress, as well as a ton of nonprofits. There was such a broad range of people that were impacted. It was stunning to me as someone who is a venture reporter to see how interconnected our system is.

McCarty Carino: This was so intertwined with the entire ecosystem. What are the vacuums that this bank collapse leaves behind, even if startups can access their money?

Mascarenhas: Even with a seeming source of relief as we see founders trying to access their funds, I think the big vacuum is really: Who do startups trust today? If it’s not Silicon Valley Bank that’s helping Silicon Valley, who are they going to go to? So, to me, the biggest vacuum is trust. I think a lot of it’s been broken, not just between tech and banks, but within tech, too. I don’t know if there’s a steady and calm source, and I think part of it’s because everyone’s saying to be calm, but there’s no clarity on where you actually keep your money. Something as fundamental as that is a big question mark right now.

McCarty Carino: You described this past weekend as this surreal moment in tech. How would you describe the beginning of the week?

Mascarenhas: It’s like a half exhale. I’m thinking we have good news, with the regulators stepping in, but I think everyone is kind of like locked in place. Just based on the venture capitalists and the founders I spoke to, I feel like the mood really went from fear to anger to panic, and now there’s, like, relief, but a cautious relief. I think people are not fully out of the woods yet. And I will say, the biggest difference is last week, everyone was going on Twitter immediately and sharing their two cents. This week, I think tech has been a little quieter. But people are coming to me more on Signal and in my Twitter direct messages to say, “We don’t want to start another bank run, but we actually don’t know what to do.” So, I think it’s kind of like a cautious relief. Time will tell for the rest of the week, but I feel cautiously calm.