Silicon Valley Was Unstoppable. Now It’s Just a House of Cards.
After 48 hours of armchair doomsaying and grand predictions of the chaos to come, Silicon Valley’s nightmare was over. Yesterday evening, the Treasury Department managed to curtail the worst of the latest tech implosion: If you kept your money with the now-defunct Silicon Valley Bank, you would in fact be getting it back.
When the bank—a major lender to the world of venture capital, and a crucial resource for about half of American VC-backed start-ups—suddenly collapsed after a run on deposits late last week, the losses looked staggering. By Friday, more than $200 billion were in limbo—the second-largest bank failure in U.S. history. Start-ups that had parked their money with SVB were suddenly unable to pay for basic expenses, and on Twitter, some founders described last-ditch efforts to meet payroll for the coming week. “If the government doesn’t step in, I think a whole generation of startups will be wiped off the planet,” Garry Tan, the head of the start-up-incubation powerhouse Y Combinator, told NPR. The spin was ideological as well as economic: At stake, it seemed, was not only the ability of these companies to pay their employees, but the fate of the broader start-up economy—that supposedly vaunted engine of ideas, with all its promises of a better future.
Tech has now probably averted a mass start-up wipeout, but the debacle has exposed some of the industry’s fundamental precarity. It wasn’t so long ago that a job in Big Tech was among the most secure, lucrative, perk-filled options for ambitious young strivers. The past year has revealed instability, as tech giants have shed more than 100,000 jobs. But the bank collapse is applying pressure across all corners of the industry, suggesting that tech is far from being an indomitable force; very little about it feels as certain as it did even a few years ago. Silicon Valley may still see itself as the ultimate expression of American business, a factory of world-changing innovation, but in 2023, it just looks like a house of cards.
The promise of Silicon Valley was always that any start-up could become the next billion-dollar behemoth: Go west and stake your claim in the land of Google buses and delivery-app sushirritos! For start-up founders, the abundance of VC money created a frisson of possibility—the idea that millions in capital, particularly for seed rounds and early-stage companies, were within reach if you had a decent pitch deck.
But those lofty visions were apparently attainable only when money was easy. As the Federal Reserve hiked interest rates in an attempt to curb inflation, the rot crept down into the layers of the tech world. Once the job listings dried up and the dream of job security began to evaporate, even the basic infrastructure behind these companies—the services that enabled businesses to actually pay their employees—started to crumble too. The instability, it seems, extended further than we knew.
Silicon Valley itself is not over, nor has the venture-capital money totally dried up, especially now that generative AI is having a moment. When product managers and engineers began leaving Big Tech en masse—maybe they were laid off; maybe the employees-only music festivals just started to get old—many, seeking new challenges, joined start-ups. Now the start-up world looks bleaker than ever.
It didn’t take much to bring down Silicon Valley Bank, and the speed of its demise was directly tied to the extent of its tech investments. The bank allied itself with this industry during an era of low interest rates—and although billing yourself as the start-up bank probably sounded like a great bet for much of the past decade-plus, it sounds decidedly less so in 2023. When clients got wind of issues with basic services at the bank, the result was a classic run on deposits; SVB didn’t have the capital on hand to meet demand.
The panic from venture capitalists around the bank’s fall reveals that there’s little recourse when these sorts of failures occur. Sam Altman, the CEO of OpenAI, proposed that investors just start sending out money, no questions asked. “Today is a good day to offer emergency cash to your startups that need it for payroll or whatever. no docs, no terms, just send money,” reads a tweet from midday Friday. Here was the head of the industry’s hottest company, rumored to have a $29 billion valuation, soberly proposing handouts as a way of preventing further contagion. Silicon Valley’s overlords were once so certain of their superiority and independence that some actually rallied behind a proposal to secede from the continental United States; is the message now that we’re all in this together?
Altman wasn’t the only one flailing around in search of a solution. Investor-influencers such as the hedge-fund honcho Bill Ackman, the venture capitalist David Sacks, and the entrepreneur Jason Calacanis spent the weekend breathlessly prophesying the end of the start-up world as we know it. Calacanis sent several tweets in all caps. “YOU SHOULD BE ABSOLUTELY TERRIFIED RIGHT NOW,” went one. “STOP TELLING ME IM OVERREACTING,” read another.
The Treasury Department’s last-minute rescue plan will keep start-ups intact, but perhaps it will also keep tech from doing any real reflection on how exactly we got to this point. As part of a goofy critique of the weekend’s events, a couple of crypto-savvy digital artists are already offering a limited-edition NFT in memory of the year’s first full-blown banking crisis. (“Thank you!” it screams from above a portrait of President Joe Biden and Treasury Secretary Janet Yellen.)
Tech will continue its relentless churn, but the energy has changed; there’s no magic, no illusions about what’s going on behind the scenes. The conception of Silicon Valley as a world-conquering juggernaut—of ideas, of the American economy and political sphere—has never felt further off. It’s not to say that tech should be demonized, just that tech isn’t special. The Valley was always as capable of a bad bet as anyone else. If it wasn’t clear to tech workers by the end of last year, it sure is now.