Silicon Valley Bank: What Happened and Why

What's up, everyone? This is Alex. Quick note about this episode before we hop into it. My co-host Jesse and I recorded an emergency episode about the Silicon Valley Bank situation on Friday, March 10th. When we recorded the episode, SVB had collapsed. Its stock plummeted. There was a run on the bank by its depositors, and the FDIC had taken over. There wasn't yet clarity on what would happen to customers' deposits above the $250,000 limit that was insured by the FDIC. And there wasn't yet a buyer of SVB. Since recording the episode, other important pieces of the puzzle have occurred. First, the Biden administration announced that all customers of SVB will have full access to their deposits as of Monday, March 13th. Second, Signature Bank, a New York-based bank with $110 billion in assets and $89 billion in deposits, was closed. The FDIC was appointed receiver of the bank and all depositors were protected in the same way as Silicon Valley Bank. Now, while the facts around the story have changed, I still think you will find this episode of The Crazy Ones to be really instructive. Jesse is an expert in how banks work and how this situation unfolded. So you will gain a deep understanding of the banking system, what causes runs on banks, And what caused the 16th largest bank in the country to collapse? Now on to the episode. What's up, everyone? I'm Alex Lieberman.

Yo, this is Jesse Pujji.

And this is The Crazy Ones. What's up, everyone? Welcome back to another episode of The Crazy Ones. This is not normal programming. I want to say it was midday yesterday. So we're recording on Friday, March 10th, and it was midday yesterday when I just saw— started seeing all of my, like, founder and post-exit founder groups blowing up. The only thing that was being talked about was Silicon Valley Bank. Were you seeing the same thing, Jesse?

Yeah. Yeah. It's been a crazy 24, 36 hours.

You know, this is one of those stories where, you know, we'd be remiss not to talk about what's happening with Silicon Valley Bank. how banks even work. Like, how did things get to this point? What a run on a bank means and how founders should be thinking about navigating not just this situation, but situations like this moving forward. So with that, we're going to have a short discussion about the whole Silicon Valley Bank situation. And if you have any questions for us, shoot us an email at thecrazyones@morningbrew.com. So let's do this thing.

I'll start. Let me start by saying actually one thing, which is, you know, I never want to see a business fail. Silicon Valley Bank was a partner of mine for over 10 years and like the people there are awesome and they supported Ampush during tough times. And I think a lot of companies and a lot of businesses, it's like really sad because it's a wonderful organization.

And they've been around for a while, right?

40 years. Yeah. So I think I was just like, I'd say I'm feeling for all the people who worked with me and supported me there. Greg Becker on the way down to the CEO, all the way down. And I have some former employees who work there. And I think like, I assume right now we'll talk about our relative exposures to this, but There are people who have— who are going to be in real big trouble because of this, founders. And I'm just like feeling for all you guys right now and like pulling for you to grind through it because it's going to be— it's going to be a rough time.

Yeah, I definitely think it's a— it's a good thing to, to point out because it's, it's very easy for people to talk about this situation. But for the people who are actually experiencing it, it's, it's horrible. And it's also, you know, I feel like you and I spend a lot of time on Twitter. And normally I'm fully about kind of like the Twitter meme culture and like people just like making jokes about, you know, Silicon Valley and startups in general. But I think this is one of those topics where, you know, joking doesn't— you know, it's like a time and place for everything and this isn't the time.

Yeah. And I mean, there's real times with us like where if Silicon Valley Bank had thrown the book at us, we— Ampush would have never made it, would be out of business. And they gave us grace and they were like helpful to us. And so, fuck, I mean, it's just like a— it sucks.

It's wild.

This is what happened.

So, so I want to, I want to step back because like, you know, obviously I've read up on the story, but I feel like, you know, you're intimately familiar with everything that's gone on. And so I guess before we talk about like what got Silicon Valley Bank in this position that caused the run on the bank, that has people wondering, are they going to be able to make payroll for their businesses? Can you just kind of break down like how is it that any bank, not just Silicon Valley Bank, works and how does a bank in general get into the spot that they got in?

Yeah, I think that's a great place to start. Banks are incredibly unique and complex businesses and they're actually really important for any kind of capitalistic society to operate because they, you know, I like to think of it as they grease the gears of capitalism because without them, money wouldn't be able to Sit somewhere, and then it wouldn't be able to get get put out somewhere. But they're actually pretty confusing businesses to understand and how they make money and what they do. So let's talk about a bank. So we go make a deposit, whether you're an individual or a business. You put a thousand dollars into a bank account. That's your asset, right? We literally in in common culture say at money in the bank. That's my asset. It's actually the bank's liability. So one of the weird things about a bank is its its balance sheet is flip. Flop from a normal business's balance sheet or a normal person's balance sheet, right? That's a liability, which means that's money they owe you. They have to pay you out at some point. Well, yeah, they can charge you fees and ATM stuff. That doesn't make them the real money. What then they do with that money is they have to hold back a certain portion of it for reserves, which they, by the way, they didn't have to 100 years ago. And then the Great Depression happened, but they have to hold back, say, 20% of it. And then they, they go and they lend that money out to someone for some reason. The classic example is sort of like they go give it to a person, you know, who wants to get a mortgage to buy a nice house. And so say they go and offer you, you know, I'm making numbers up, 1% for your deposit. For a checking account, by the way, they offer zero and they have a higher reserve requirement. For a savings account, they may offer a little bit. So, and then they lend it out at 5%. So on my $1,000 example, in a year, the revenue of the bank would be—

$50.

$1,000, 5% of that is $50. Their cost would be $10 plus whatever overhead and admin. And like they make this thing called like a net interest margin. So that's the way that they actually make money is they borrow from depositors and they lend to various things and various people. Now, Silicon Valley Bank, most of their cash was coming from startups or VCs, right? That's, I mean, literally the name of their bank. And so they would get all their cash from those people and then they would lend out to, you know, they lend to Ampush. When we did an acquisition, they helped finance it. So they gave us, $5 million, we paid them, I forget the rate, 5 plus whatever. And there again, they're making that spread. That's how banks make money. Now, the reserve obviously holds back. There's one other thing that's important to realize, which is in an ecosystem of banks, if you then put money, you lend me money to buy my house with, right? Or you lend me money to buy a company with, the person who gets that money then takes that money, and then they put it in their bank account. Well, then that bank does the same thing. So there's this really unique money multiplier thing that starts to happen where there's a lot more Sort of like deposits on deposit technically than exists cash in the world at any given time. And that's like when people talk about a bank being levered, that's what they're talking about. They're talking about the amount of cash and deposits they have versus what's going on. Now, Silicon Valley Bank took money from VCs, you know, usually that was funding their startups, just held that bank. They're actually a very conservative bank traditionally. And then they went out and lent it out to startups and did other business. Now, They had to go and, you know, it's kind of a funny— not funny, but it's an unfortunate sequence of events with PPP because we actually got our PPP money from Silicon Valley Bank. Ampush did. And so the government goes and says, hey, I'm going to go put trillions of dollars into the economy. And Silicon Valley Bank's deposits went from something like $60 billion to like $200 billion in less than 2 years.

Yeah, $190 billion from 2019 to 2022.

That's how much it went up by.

Yeah, it went from 60 to 190.

190. Yeah. So 3x. Okay.

Yeah.

So hey, that's cool for them as a bank. But now think about what you're in the business of. I have all this cash and I got to go lend it out. Well, there weren't that many startups borrowing money and there weren't like, you know, and so in your— in their position, what would you do? And you probably did it in that timeframe, the 2021-2022 timeframe. You said, let me just buy some safe, theoretically safe, long-dated mortgages, long-dated government-backed bonds. You know, those are good deals. I'll hold them till they mature. I got to put my assets somewhere because I have all these assets that I didn't have before, all these deposits that came in.

Yeah, they're just like, I want safe yield. Like, they're like, I just want safe yield so I can make my margin.

I don't want to have to think about it. I got all this kind of free money from PPP. And it's like, also, there's a whole nother funny conversation around the government gave all these people money and then they turned around and lent money back to the government, which we will save for another day. But they did that. But back then, the interest rates were 1%, 2%, right? And now, as we all know, interest rates are 4% or 5%. So now all of a sudden, they had this issue where they were lending money, they had lent money out at 1% or 2%. And all of a sudden, the cost of money has gone above that. It's gone to like 4%, right? And so in finance, like if the interest rate goes up, the value goes down. You probably remember that from your trading, your 9 months of trading, right?

Exactly.

And, and so Technically, what happens is all of those, those things that they bought were worth far less. They just went down in value. Now, they could have just held them to maturity. But the other issue that starts to occur when you have that much long-dated stuff is you're kind of— you're in a rock and a hard place. Think of it as like owning your home for 30 years. You have 2 choices. You can either sell your home and get the money today, but you're going to sell your house at a loss. That's the same thing as owning the mortgage. You're going to either own that mortgage and sell it at a loss, or you can hold on to it, but you don't have any money. You just own the physical house, right?

Right.

So, so what do you do if you need cash? If you need— and banks Banks need cash because they have to facilitate.

And by the way, to that point, like, you know, we don't have to go into this whole thing of like duration risk, but like basically there's this huge risk of the Fed. You know, there's a plan for the Fed to keep raising rates. So like the book value of these mortgages is only expected to get lower and lower, right? Yeah. So the question is, how much of that risk are they willing to take? take on.

Yeah, exactly. And so, you know, and then the other thing that was happening just to give it voice is like less VCs being invested. And people may not realize this, but for those listening, venture capitalists don't sit on— if when they say I raised a billion-dollar fund, they're not sitting on a billion dollars, that money stays with whoever said they're going to, and then they do capital calls. So that money sits wherever it belongs, then the VC takes it, then it actually does sit inside the companies. But it's like less of those checks were being written. So there's less deposits coming in, which they're dependent upon. And these guys are all burning cash. So their cash deposits are going down just because every month they all have less money in the bank. That's a company that's burning. So, you know, you started to create this very, very challenging situation where I was talking with one of my former bosses from Goldman this morning, and he— I texted him this morning. I said, what's going to happen? And he said, it's going to be zero by the end of the day. Like, he knew it. And he said he had actually shorted it in December. And he knew that because of this big duration thing we just talked about where their assets sat. And because he said their, their clients, like where they get their money and their deposits from, or just they had all done the venture math and realized, oh, they're just not going to get enough cash to support what's going on. Now, all of that is a good reason to short a bank and make money off the equity being worth less. None of that is a good reason for Silicon Valley Bank to now be in receivership.

Yep.

So let's talk about how did that end up happening? You know, if you paid attention to it, but you can take on because I've been talking a while.

Well, yeah. So like basically just, just to sum up what you said, basically Silicon Valley Bank, their deposits grew threefold over the course of 3 years. There was only so much that they could do with their increase in deposits. There weren't that many. There weren't 3x the number of startups that they could lend money to. So they had to invest in something to get their yield so that they were making more yield than the basically the the yield that they were giving to their depositors. Those were mortgage-backed securities. The rates of mortgage-backed securities moved up a ton, which basically means the value of $80 billion worth of mortgages went down significantly. They sold those mortgages or $20-something billion of them at a, I believe, a $2 billion loss. And but, but my understanding here, and correct me if I'm wrong, is that actually isn't what created this whole issue.

None of it. Yeah. I mean, they actually went out and they said, We're selling this at a $2 billion loss. And frankly, they did it. They're great bankers. They said, by the way, guess what? We've already got $2 billion of capital coming in to cover that shortfall. So in an already— it's highly conservative what they did. They could have just said, guys, we're selling this at a small loss. Who cares? We have hundreds of billions of assets. What's the big deal? But they even went out and then there was a series of missteps or—

Yeah. So walk through basically what they did because I think This is so important, by the way, because I think people who haven't necessarily gone down the rabbit hole of Silicon Valley Bank assume like, you know, like this is like Lehman 2.0.

Yeah.

Like they were financial bad actors. But all of this—

Nothing like that at all.

Is literally just a function of basically momentum created by founders and VCs having fear that they wouldn't be able to get their money.

Yeah. Well, I think that's— I think that's part of it. So So they go out. So what ends up happening is there's this other bank that was a really crappy bank called Silvergate or Silvergate. And I don't even know anything about them. I've never heard of them. But at the same day that Silicon Valley Bank announced, hey, we're going to do this repositioning. And by the way, we've got some more capital coming in. General Atlantic invests. General Atlantic is like an amazing, great investor, highly blue chip. I think a lot of these people who had been sort of worried basically said, oh, like Silvergate went out. It literally happened the same day. It happened to have happened the same day. Yeah. And which was kind of a PR mistake, right? They should have waited. They could have announced it next week, or they could have done, you know, they could have managed the news more carefully. They could have taken the capital first and then done this, whatever. There's probably 5 different ways they could have managed it, but they didn't. And in our financial system, in our stock market, in our banking system, trust is paramount. And when you start to lose trust, you know, all hell breaks loose. So basically, they did that. It panicked a bunch of people that hit the stock pretty hard. The stock going down led to, like, you got in a lot of group texts, I got a lot of group texts, my, you know, we're saying, you know, if you have money there, take it out.

Yep.

You know, and we, in a personal thing, it was kind of a crazy situation for me. We had some money from leftover from the Ampush deal in an old bank account, like, that was still, some of it had to stay in there for escrow, some of it was just, we hadn't taken care of, like, we hadn't pushed it out.

Is that personal money or business money?

It was business money that hadn't been distributed. And so like, you know, my co-founder Nick yesterday goes, hey guys, I just think, you know, being prudent, we should take everything but the escrow out because we couldn't take the escrow out. That's legally required. So we did that. And then both of us called each other like, man, I feel kind of bad. You know, they were good, but everyone's doing that, right? It's sort of a game of hot potato. And then again, if you think about how their balance sheet works, deposits are liabilities. There are things that have to be— now they're hyper short-term liabilities, which means anytime someone asks for them, they have to come off their balance sheet. And I was looking earlier today, Silicon Valley Bank You know, we said $200 billion in assets, whatever. Guess how much cash they have on their balance sheet as of December 31st?

$10 billion.

Yeah, roughly $13 billion, $13 or $14 billion. They probably have ballpark 10,000, 20,000 customers. 10,000, 20,000 customers all pull out, say 10,000 customers pull out $5 million. That's $50 billion. Is that math right?

Yeah.

All of a sudden they don't have cash. I mean, they don't have the cash to cover that, right? They just— there's no way. And they can't sell those things because they're long dated or they'll have to sell more at a bigger loss. And it just leads to this untenable situation. The sad part is it's driven by their customers and by fear and by like, and again, you and I are sort of in the ecosystem. So by the numbers, numbers of texts and calls and emails going, if you have money there, you should probably pull it out.

There was one group chat I'm in. There's a post-exit founder group chat I'm in. Just in that group, there was like a tally taken of how much money was taken out by just those founders. And it was $2 billion.

There you go. Yeah, so that's— I mean, you're saying that in your little group, or big group, I don't know how many people are in it, but probably not more than 100 people.

300 people.

Okay, so in a group of 300 people, you're telling me that basically their 20% of their balance sheet was gone, just in that group. And so I think the other thing, you know, Greg Becker went on and there's like a famous thing in banking where like you never tell people not to panic, or not even banking, and just in life. You know, if the captain gets on the air thing and says, hey guys, you know, One of our engines is gone, but please don't panic. Everybody starts panicking, right?

Totally.

And that's what happened yesterday. And it happened in big and small ways. And like he kind of— he said those words, don't panic. And then everybody started panicking. And so I think, you know, the stock then keeps dropping. And basically, you know, clearly by the end of the day, I think they tried to raise capital. Nobody wanted to put money in it. Then they tried to sell the business. Nobody could buy it because, by the way, imagine that that balance sheet every minute is dropping by $1 billion or whatever, right? Every hour, $1 billion is going out. Who could evaluate it? And so I think they did the only thing they could.

The market's just changing too fast. And so I guess the question is, is my understanding is, first of all, that of their, let's call it $180 billion of deposits, something like $176 billion were uninsured because, you know, the only thing that's insured is the $250K.

Because it's a business bank, right? Like if it's a personal bank, nobody keeps more than $250,000 in their personal accounts. But in a business account, you keep millions of dollars.

So, so let's just I'm going to use like you as the example, but I think this can be extrapolated to other founders. That million dollars from Ampush that's kept in escrow, what happens now?

Yeah, so, you know, we left a million bucks there. We tried to wire it today after that announcement and it's not getting wired, obviously. What, you know, I don't know is a short answer. No clue. I think the smart people I've spoken with said, well, look, $250,000 you'll get and you'll probably get it next week. Because it's insured by the government, which is nice. And then the other $750, like you're in line, you're, you know, you should be a senior creditor to whatever this, you know, receiver, when someone says receivership, that means bankruptcy. It basically means you've been put into bankruptcy so that somebody else can overwatch the like liquidation of something. I think there, I've heard lots of rumors, unsubstantiated of course, that like they will get bought over the weekend, like JP Morgan or somebody is going to come in and buy them because now that the government stabilized it, someone could come in.

But how do you value that business? Going back to your point, like how do you value this thing that doesn't have deposits anymore?

I don't think— I think they get— they, you know, people get to keep their jobs and, and maybe some comp packages or whatever. Like, nobody makes any— like, the shareholders are zero or near zero.

Yeah.

Or like, you just buy it for zero and then some shareholders will sue and they'll get settled. But like, I mean, that's like, you know, Bear Stearns was bought out for $2. Merrill Lynch, I think, was given, right? Bank of America was like, you better just give this to me because I'm not going to— I'm not going to take it otherwise. So that's like the crazy thing that it's kind of a funny, you know, financial institutions don't They don't really make anything, you know, and so and so they rely on trust and relationships and credibility and all these different things. And it is pretty sad when you zoom out. It's just kind of like how everyone turned on them. And even like as someone who kind of semi did that, right, like we took out what we could. It's the challenging thing is it has nothing to do with them from my perspective. It's like again everyone else. It's just like one of these classic panicky situations where you're like, well, I don't want to be the person left holding the bag. Like I don't want to be the the Boy Scout here that gets screwed over by other other people panicking. And so. It just ended up being the situation. It's just sad that it, that it came to that. But, but yeah, I think we'll get in line. I think there'll be a creditor process. You know, my guess, like people have told me, you know, Lehman's last claim was paid 14 years after it was— after, after the bankruptcy. People have told me 3 to 6 years, like we're not going to see that money for 3 to 6 years.

It's wild. I want to, I want to talk for a minute about what, if any, contagion could look like. But first, Quick message from the folks that pay the bills. Let's just using the example of Lehman not paying out kind of their last creditors for 14 years, like what happens to these startups that were using the deposit that they had with Silicon Valley Bank to pay for their operations? They have payroll in the next week or 2 weeks unless a deal's done by then and everyone's paid out, which I would assume the, the odds of that are zero. Like what happens?

I hope people figure out a way. I mean, I'll give you again a personal anecdote. As soon as this is happening, you know, a lot of people are bringing me most of all the GatewayX stuff and growth. This isn't all that stuff is with JPMorgan Chase.

Yep. Because that's where our money's with also.

I bank there personally. And so I'm like, all right, we're cool. We're cool. Right. And then I'm like, wait a second. I've been, I've seen this before. I was young, but I remember this. I'm like, there's got to be other angles. I started thinking of the other angles. Well, one of our, Unbloat's biggest lender is Settle. And Settle lends us money against media and inventory to buy, you know, to buy this stuff.

And like, where do they get their money from?

They bank with Silicon Valley Bank. So I immediately go, are you guys okay? Is everything— because if we lose a credit line for Unbloat, Unbloat's gone. Like, you know, or I have to put a lot more capital into it, which I probably wouldn't do. Right. And so that one seems good for now, but we have some backup options. Then I'm like, wait a second, who does payroll? And so I go, oh shoot, Rippling does payroll. So, oh yep, Rippling has exposure to Silicon Valley Bank.

I saw their CEO with that thread.

And guess what? I sent— we sent payroll money out this morning and we have no idea where it is right now. Like, and so I went on to the Slack with my Kahani folks and I was like, hey guys, I'm on top of this. Don't worry, we bank with JPMorgan. We're all good. No, we have no direct exposure. Then literally an hour later, I'm like, take that back, guys. You may be getting paid late next week because I don't know where this money— like, I'll figure it out. But like, I want you to know that Right now the money is between us, them, like 2 banks and 1 bank that may not be around. And so, you know, the stuff— not only is it going to be highly disruptive for operations, focus, all this other stuff, but, but yeah, I mean, to your point around founders who, if you're burning, you know, making something up, say you're burning $10 million in cash, you have— or you're burning $1 million in cash, you have $20 million in the bank, and now most of it's gone. Even if it's an asset, literally the startups will have the same problem that the bank had, which is—

Totally.

I have assets, I'll probably get them back one day, but I don't have liquidity.

There's a mismatch.

Yeah. Liquidity. I just don't have the money to meet my obligations. And so, and then anyone who's near the brink, or like, I mean, there's going to be, unfortunately, I think a lot of fallout from this. And I just hope, and like, I would tell anyone listening or what, like, I just hope people don't let it spread to other banks. You know, because I don't even want to say this, but the reality is if other, if everyone starts to pull any bank, this could happen to any bank. Because if somebody wakes up and everyone starts pulling their money out at one time, any bank at any moment could fail, right?

Yeah, I saw even like First Republic today was down on the news despite it having no seeming—

the whole sector yesterday and today have been crushed by it. Well, partly because they do all have the same duration issue, just not as pronounced. And then they all have more diversified customers, right? They don't have these.

Yeah, I mean, I think that's a big thing to point out here also that we just haven't— it's obvious, it's obvious, but we haven't mentioned it is like You know, an inherent embedded risk to Silicon Valley Bank is it's implied in the name, like they've always been considered the bank of founders, startups, and VCs. And so like there's actually a ton of inherent trust risk baked into that because it doesn't take long for that customer base to, to be thinking the same exact thing. Whereas like a bank like JPMorgan, obviously you have way, way more history in terms of trust being built, but also a far more diversified customer base for trust or like fear of trust to be spreading. Yeah.

Yeah. Yeah. So it's a, you know, I think it's going to be rough for— I think a lot of the like fintech or lending businesses are going to have some challenges related to this because like just liquidity is going to become a more challenged situation. And, you know, I posted this tweet from a buddy of mine who's a really sophisticated hedge fund guy. And I'd summarize it by— he said, look, the last 10 years, everybody, the whole business ecosystem is built off of free money, basically between You know, some people say zero interest rates, but he told me one time, it's actually way negative interest rates. The government's been paying you to take its money because of all the PPP and the free money that's been handed out. So it's been better than free money. We've gotten— we've been paid to take money. And he goes, and now that's not the case anymore. And we're only 6 to 9 months into this. Like, some wonky, weird stuff is going to happen because there's just a massive readjusting that has to take place in the world to kind of adjust to this new reality. So— I think this is unfortunately one of them. And it's, you know, again, it's sad and it sucks because it's such a great firm and they've helped so many companies. Right. And always been great partners. So.

I have a few more questions before we finish things up. The first is from a founder's perspective, obviously hindsight's 20/20. Is there a way that founders could have avoided this sort of exposure that makes sense within the context of running their business? Like, for example, I saw A thread that Andrew Wilkinson brought back up from a while ago where he basically was like, he thinks it's idiotic for founders to keep their money in cash within a bank because, you know, you're relying on the bank. It should just always be in, you know, short-dated treasuries because you're getting yield and you have a government guarantee. I think that that makes a lot of sense. The other side to it, though, is like you can't operate your business, you can't run your operations. on short-dated treasuries. You need cash to operate your business.

Right.

So like, how should founders think about like financial risk like that? Is there anything that someone could have done?

Yeah, I mean, it's definitely going to be a boon for all these startups who are doing treasury services because now all of a sudden, 100%, you know, by the way, one quick aside before I answer the question is I think Warren Buffett has this famous quote where he says like cash is like oxygen. Like you don't notice it until it's no longer there. And then that's the only thing you care about. And I think we literally just experienced that. An entire ecosystem just experienced that, which is like No one was worrying about breathing until someone said, you know, the air might leave this room. And then we were all like, oh, we got to gasp for as much air as we possibly can get because it might be gone. And and that's what happens. But I mean, look, I think these startups are going to do well, and they're well. This is going to be a positive moment for them, which is we. I've been doing this with JP Morgan. I mean, I have everything in CDs and treasuries, and then it's really annoying. By the way, every two weeks I have to sign a thing, and so the money has to come out for payroll. And it like, and at first I was like getting annoyed by it. And then, and someone was like, this is just a new reality. Because A, you're getting yield. By the way, we were doing it for yield purposes. We were getting a rate on the money, right? Right.

Versus like protection purposes.

But now I think it's going to be even more with protection purposes to be in treasuries or money markets or things that just have more protection. And then, yeah, I mean, look, I think, you know, like anything, it's funny, you just don't think about it. But like, you should have diverse banking partners.

Yep.

You know, have more— like, even we were, we were in the middle, like, of trying to figure out how to do this with the private equity guys and the continuity, the people who bought us. And we had to be like, hey, can we waive this requirement for the escrow and move this money out? Right. And they're like, yeah, you know, they obviously understood the situation. They're like, well, what bank account are you going to move it to? And we were like, we don't have another business. Like the, you know, our S corp doesn't have another business bank account. It just doesn't. And so we were like, we'll move it to Nick's account. Like, So even that's just like silly, right? Like have multiple bank accounts, have them connected with each other so that you can move money freely between them.

Which again, just like I totally agree with you, but it is so much like one of those hindsight is 20/20.

It's so annoying.

It's like, yeah, it's so annoying because it's like, of course that's not a risk that you actually thought you would have to worry about. So why would it have been worth the effort to actually keep your money in 2 or 3 different banking partners?

Totally. I mean, I think keeping— I think every part of You know, again, these single points of failure, they don't— they're— they don't matter until they matter.

Yep.

Like, I think about that with Growth Assistant in the Philippines sometimes. Like, I'm like, well, should we be in multiple countries? Like, what happens if just some treaty breaks and all of a sudden, like, we can't employ those people? Like, that's a real single point of failure. And I think as you get bigger, they don't matter in the early days.

But as you get bigger, you got to get like building redundancies in actually is like a really important thing to think about. Any, any final thoughts on the situation, which obviously, if there's any new information that comes out, We'll talk about it on an upcoming episode. But any final thoughts before we finish up with a question from one of our listeners?

No, I mean, I think like the— I said it to Nick today. I was like, man, I'm so glad he was on top of this. Like, I'm not— I mean, I probably would have heard the news. I do think there's something to be said about, again, the sad part about them failing, but there are plenty of companies who did get their money out before this happened. Now they might have caused it to happen, but like, I don't know which side you go on, right? But it is, important to be on top of these things. It is important to kind of like, I am one of these founders who believe the founder has to, it doesn't matter how big the company is, has to ultimately own the balance sheet and own that cash number. And nobody else can ever fully, truly own that. So I think the only other thing I would say, one of my lessons has always been, I got to know where the money is. I got to know where it's going. I still do with every business a 2— I don't know if you ever did this. Do you do a check run? Do you know what a check run is?

No.

It's like this old school thing. You're going to laugh when you hear this. So like, you know, back in the day, every 2 weeks, the boss, like someone would bring in the checks and the payroll and your boss would go, check, I'm going to sign all these checks. I'm going to know where all the money's going out. And it's something somebody said to me early on that like, you have to take that responsibility. And a year past being the CEO of Ampush, I did it at Ampush. I do it with every single GatewayX company, which it's obviously not checks anymore. But every 2 weeks before any money goes out, someone has to sit with me for 15 minutes and go, Here's payroll this week, you know, these for these 2 weeks, here's who it's going to, here's the reimbursement we're paying. And I've just always done that. And it's just like a simple thing. It's like, I have to see everything going out. And ultimately, and by the way, I find all kinds of funny, interesting things in that process.

I mean, it's honestly, you know, someone could argue it's 15 minutes wasted. Someone else could say it's like, it's a force function for you just understanding your business better than anyone else.

And I could tell you the cash balance of every business right now off the top of my head. Because I do that every 2 weeks because it's just a cash bridge, right, between the—

Yeah.

So I always know what the cash is.

No, I think that's so smart. Okay, well, on this really positive, light note that we've been talking about for the last 31 minutes, let's, let's finish up with a startup AMA. So we have a question from Reggie, who's a listener in SF. And Reggie asked, and it was a question that actually came in in the last 24 hours. The question was about comes, like when bad news happens within your company, whether it's you're laying people off, whether it's a cyberattack, whatever it is, something that is not positive within your business, what are your strategies for communicating to your company in a way that is both honest but, but isn't you saying, don't worry, you have nothing to fear?

Don't panic.

Don't panic.

Like, the answer is obviously it depends. It depends on the nature of this, you know, is it a sexual harassment issue? Did you, did you lose a lot of money at Silicon Valley Bank? Did your biggest client leave? I mean, I've probably been in all 3 of those. I've had to communicate versions at different times.

Yeah.

So there's a lot of the answer is it depends. I think like the more you put yourself in someone else's shoes for any kind of communication, the better. So like empathy, what's that they're thinking. One of my frameworks I like is the I, the we, the it. Like, what does this mean for me? What does this mean for my team? And what does it mean for the company? Like the group, like the whole thing. And so like being able to very clearly spell what that means. I think like the other big one for me is like being honest about the current state of it. And then like, what are the next steps and when can they hear again? It's just like, you know, any kind of trust building situation, which is just like, okay, here's where it stands. Here's what we're doing to figure it out. Because a lot of the times you're just communicating without— you don't— even today, I was like, I said it luckily, right? I was like, I'm communicating what I know right now. I don't think, you know, like—

Totally.

But I will let you know again today where we stand. And then nobody— I don't know, there's only— the team's very small, but like nobody was mad that I said your payroll may be delayed. So I think being honest about what you know, where you stand, what facts you are aware of, what things you don't know. Right? Like if you're very, I don't know this, I don't know this, I don't know this, and here's what I'm going to do next, and here's when you can hear from— expect to hear from me again. Yeah.

I mean, I mean, it sounds like basic stuff, but at the end of the day, it's like this basic stuff that, that leaders and founders mess up all the time. It's like overcommunicating. It's putting yourself in the shoes of the people that you're speaking with. And at the end of the day, it's building trust. How can people trust you? Because moments like that, any moment, whether you talk about a riff, whether you talk about some article that came out about your company, right? It's a— it's potentially a chink in the armor of trust that people have in you, right? So it's like, how do you reestablish that? You know, I think one of the biggest things that comes to mind for me, and it goes back to empathy, but it's the rule of thumb, is write down every question that you could envision your company asking you about what has happened. And to the best of your ability, obviously not breaching confidentiality that happens with individuals within the company, how do you answer all of those questions proactively before people ask them? Because I think what that does is it leaves less up for interpretation because we as people are story-making machines and people will create stories if they don't have answers.

Totally.

And the second is I think it actually helps build trust when someone says, oh, wow, Jesse, Alex, whoever it may be, They've thought about all of this and they have done their best within their ability with the information they have to give us the information they have. And I think to your point, the other thing you said is if you set an expectation of I'm going to overcommunicate, I'm going to speak always about what the current situation is based on the knowledge I know. But that could change in the future because new information is going to come in. But you're going to always know what the current information is. And I'm always going to have some plan based on that information of how we are going to push things forward. I think that's all you can ask for from a leader.

Yeah. The only thing I would add that it's like, it's something I learned, you know, Type 7s, one of our traits that you don't even— I don't know how much you know about yourself. I'll teach you about yourself. Like, we don't like negative. We don't like— we generally, we like positive and happy and like we sort of avoid the negative, the things that I don't want to deal with that. Right. And I think for me, the way that used to show up was like in a tough situation, I would not sort of fully allow the bad to be there. I'd go, oh yeah, yeah. But, well, you know, I'd spin basically. I wouldn't even mean to be spinning in a like manipulative way. Like my, my, I would just naturally avoid it and then I wouldn't talk through it or think about it. And actually, this is obviously a slightly different situation, but we had a big session this week. The whole Kahani team came in town and we did a big thing on product market fit. You know, are we 10 out of 10? Are we 5 out of 10? And the numbers were kind of low. And then we did this really cool exercise, which I'll tell you about sometime, where you're like, how did we all create this? How do we make—

And by the way, just before you say we, we did an episode On like where you're at on the out of ten scale for Connie. So if you haven't listened to the episode yet, go back in in the feed and Jesse and I talked about where Connie is from a product market fit perspective and and how he gets there.

Sorry, keep going. We went through the intellectual part of it, and everyone's like, "Yeah, there's this issue," and we haven't taken customers here. And then I like I paused for a second, and like I wouldn't have done this five seven years ago. I looked around. I'm like, "How do you guys feel about that?" You know, like how do we feel like that? This feels frustrating. I feel really frustrated that we haven't found it yet. And like, you could just see people's bodies releasing. Yeah, this sucks. I wish, you know? But then somebody, everyone kind of did that a little bit. Then everyone was like, yeah, but this is what it's all about. And all of a sudden it was a very authentic rally, if that makes sense, versus a contrived rally.

Yeah.

Like, we actually released and felt our feelings. So I think the other thing you can do when you're delivering bad news, to answer Reggie's question, is like, make room to not just empathy of what it means for you or something, but also empathy about how it must feel or how you're feeling. If I were a CEO and I have $10 million from this SVB thing stuck in a bank account and I'm burning cash right now, I would be, guys, I'm feeling a little scared right now. I wouldn't surprise me if you're feeling scared also.

Totally.

I think being that honest around your emotions and creating that space will build a ton of trust with everybody.

Yeah. I think that's such a good point to leave off on. I would say, yeah, I'm the same way. I think It's so easy to fall into this bucket of what could be considered by some as blind optimism because we like to convince ourselves that everything will always be okay. But I think inherently it's like this protective mechanism for not displaying weakness and for creating this alternate reality that actually sometimes does a disservice to you making changes or doing things that put you back on the right track. So I think that's spot on. This has been awesome. And honestly, I feel like, like, you know so much about the intricacies of just like financial services and how the banking system works. And so I feel like I'm I got a masterclass from this. Again, this is a really shitty situation for everyone that is like on the front lines dealing with the SVB situation. Like they've been such an important part of the ecosystem for so long. So, you know, I know I speak for both of us where I think we both can say that we hope this finds a resolution. We hope that this finds a buyer, that the companies that are really scared right now do find a resolution soon. And Any founders that are trying to navigate this situation or, you know, just want someone to chat to. I know Jesse and I are always looking to just spend time with founders and provide perspective where it's helpful. So, Jesse, anything else before next episode?

No, I hope this episode, for those who are wondering, I think there's a lot. I did a poll yesterday. I was like, and more than two-thirds of my followers had no clue what was actually going on. So I think that's when I was like, let's do an emergency. Like, we need to explain.

I also think it was higher, by the way. I think it was higher. I think some people are saying they know.

Of course.

Yeah. Yeah.

And I'm sure I don't even, you know, neither of us fully grasp it either. Yeah, but, but I think hopefully this was also timely for everyone who's wondering and listening and the crazy ones out there can get some educated around it.

Totally love it. Cool, man. Well, this was a really good conversation. We're super excited to catch you all next episode. And as always, send us a message saying hi, ask us any questions you have at thecrazyones@morningbrew.com and we'll catch I'll catch y'all next episode. Take it easy, everyone. Take it easy.