San Diego Tech News Weekly – March 21, 2023

Foreign hello and welcome to this Week in San Diego Tech News. I'm your host, Neil Bloom. Thrilled to have longtime friend and co host Fred Greer. Hey, Fred, thanks for joining us this week.

Of course. Thanks for having me.

Oh, yeah. So really excited to. We got a lot to talk about and you know, like, we, we could spill. Fill this entire time with Silicon Valley bank fallout. So we will, we will get to that. If you're listening to this recording on the Tacos and Tech Podcast network, we try to put out news, you know, stories, commentary, events, things that are happening by audio. Whenever we can get to it. We'd like to get to weekly back to that flow. But, you know, this is kind of a collaboration of Fresh Brewed Tack, which is a San Diego tech podcast and blog and community. So we're trying to just put some content out there for you and we love to hear from others who are also making news and covering the news, of which Fred is. Has done both. Fred, give us a little background of what you've done in the San Diego tech ecosystem.

Yeah, so thanks for having me, Neil. It's always a pleasure to, you know, to be on this podcast with you. So my background was writing as a tech reporter at the San Diego Business Journal covering VC startups and some of the large companies here like Qualcomm and Illumina. And I'm very passionate about the ecosystem here. And. And yeah.

You'Re still here. You're still, you know, covering us on your, on your substack. So we'll make sure we put a link to your substack, which you put out. So thanks for continuing to write some great stories. Obviously you've gotten to kind of grow up around some of these companies as well too, which is kind of cool to be able to continue to report on them, right?

Totally having a front row seat, kind of understanding, you know, what companies have got funded, which ones are growing, which ones are hiring. And you know, I think this past week with SVB News, it's been a really interesting time to be a founder in San Diego. And so I'm really excited to dive into kind of, kind of what, what happened.

Yeah, yeah. I think it's near and dear to our hearts because all of us have a personal connection to local Silicon Valley bank managing director Eric Otterson. You know, one of the first people I met when I moved down here in 2013 when he was at Cooley Law Firm, got us onboarded, got us onboarded to the community. He helped jumpstart, really Startup San Diego and Startup Week building kind of a connection to the service provider community, to the startup founder provider community. I mean the guy bleeds startups here in town. His license plate actually is Startup SD with like a star SDS and he's had that on multiple cars that I have seen of his. His dad also was one of the co founders of Connect and Bill Otterson. And I believe there's, there's halls at Rady UCSD named after Otterson Hall. So, you know, big impact with our local guy here. And I think that was the first immediate outpouring that we saw was, you know, oh, Eric Otterson. Like that's, that's the connection at Silent Hands. At the same time, our startups who immediately were told either by their VCs or by the news or by SVB, like, hey, there's trouble afoot here. Your money may not be safe. And that started a panic globally, which spilled into, honestly, within 24 hours, SVB getting taken over in receivership by the FDIC. Super interesting to follow it. I personally was getting pinged by a bunch of different banks and bankers that have relationships on Thursday and they're saying, are you okay? How's your portfolio? And I honestly, at first, the first thing I got, I thought they're talking about stock market. I thought the stock market just crashed. Like I had not seen any news about sbb. I think this was like noon on Thursday. So I've been heads down in meetings and I was like, my first response was no, like we're long term investors. We're focused on 10 years out, like whatever the stock market's doing today. Not bothered by. But after a number of pings, I was like, what is happening? Signed into Twitter to read the news, which is what I do, and seeing, you know, some meltdown already. What was your first take? When I think actually you, you were telling me about, we were on a call together. You were, I completely forgot about this. You were telling me like, hey, are you seeing this right now? And you sent me a link on Twitter to follow the thread that was going on.

It's super funny you mentioned that because yeah, my first kind of foray to understanding what was going on was through Twitter. I follow a bunch of VCs to understand, you know, what companies are being funded and what's happening in the startup and venture space. And I just saw the community, the VC community talking about the Silicon Valley, you know, event. And then you see it was happening on Thursday, on Thursday afternoon, and then Friday this news became mainstream. We thought it was going to be something in the small community, but it really was something where your mom or your dad and your parents was like, what's going on at Silicon Valley? And it really has expanded beyond the startup community and it's been, you know, interesting to see how it progress over the last weekend. So I mean, I know you had to gather your founders, portfolio companies you invested in. You talk about what you did during that time. I know a lot of VCs were trying to help the portfolio companies because they couldn't access their money out the bank.

Yeah, that Friday, as things were really unfolding fast, I actually was working out of another investor and CEOs office, Shane Scaff's office, his Bluma office in downtown Antonia. So we were kind of in real time talking and sharing while I was on slack with my partner Al and just like sharing information. So it's kind of interesting to just be with people in person. As things were spilling over immediately we, you know, sent a note, just like a portfolio wide note out saying, how's everyone doing? Do you need intros? What's your current state right now? And at this point, midday Friday, pretty much you were locked out of getting your funds out of sb. Like they, I think they had locked down the portal and you know, so for us we're just checking in to just understand who is in, who's not, so who's affected, who's not, who needs relationships elsewhere. Because that was the immediate feeling, right, is like you're going to need a bank elsewhere even if you can't touch this money. And there already was this big unknown where, you know, payrolls coming up within a week. What are we going to do? And I was getting, so I was communicating with people by text, individually, you know, like, like Cody Barbo, who I was texting with in real time and others and already getting this sentiment of hey, I don't know what we'll do for payroll, we might need to borrow or raise in the short term from all of our investors. Would you be interested in someone that. So already getting those kinds of comments by midday Friday. And so in my head I'm thinking, okay, not only here to help, but from connections financially, how do we jump in here if we need to? We had not made it, we had not made any decisions about that. We're just like, okay, let's just understand what that's going to mean. And then throughout the whole weekend it was pretty much touching base with all the founders through text or phone calls of some sort. So that pretty much just triage from Friday through Monday in that regard.

Yeah. And I think Mike Freeman from the San Diego Union Tribune did a piece on this and you were interviewed for that piece and he said that I think roughly 50% of startups in incubator, evo, Nexus banked with SVB and even the industry at large, a lot of the top companies that have raised VC funding had their money with Silicon Valley Bank. And so they were a really ecosystem, a big ecosystem player. And during this time period they couldn't take their money out the bank to make payroll with them, even like aws their software to, you know, to run their, their, their software. So it's just really, it's kind of hard to wrap your head around, you know, who was impacted. But it's really companies that had, had put millions of dollars, not, you know, 1 million, maybe 15 million, 20 million, and they just could not take their money out the bank to make.

Yeah.

Tasks.

Well, there's this, this thing that's not talked about a lot in the startup community, which is venture debt. And so every time you raise an equity round, oftentimes after series A and later you can go and get kind of a credit line against the equity amount that you've raised. So you raise 3 million, you from, you know, a bunch of VCs, you can go to Silicon Valley bank and get another 3 million and they will, you know, loan you the funds purely based on the fact that you have some name brand VCs backing you. So that's venture debt. And I think Silicon Valley Bank, I don't know if they pioneered it, but they certainly owned it in our community. And they're one, you know, one of the big prerogatives to have that is you need to have the money that they're loan against banked at Silicon Valley bank to get their loan. So people had to keep enough money there, otherwise it triggered a number of covenants that said they have access to warrants and other things to your company. So you know, in a sense people were out, had to keep money there. And people were honestly during this timeframe of pulling money out, people were saying, I don't think I can pull it all out. I think I still have to keep my venture debt equivalent money in, otherwise it might trigger it. So they were even confused of what to do there. And if you could pull money out, you still might not have been doing it. Unknown if you'll ever access that again or weeks months later. So there's a lot of confusion there in that regard. And I think something I quoted, I Was quoted by Mike Freeman about was really more like macro scope, macro level. We kind of did this to ourselves as an industry. You know, we, we, we got scared by the. Then I say we like the VC and startup leaders community where we got scared of what, what's happening at Silicon Valley bank. And it trickled down like this paranoia, this hysteria. And you know, I'm not proud of that, that, that, that happened. One, we're already a risky industry, so top tier bank. Why would they bank a risky industry that could go out of business? And now we do this, we do a run on banks. Like who knows if that could happen again. Doesn't look good for the community in general.

Yeah, just to comment on that too, I would just say that, you know, svb, their main customer were these venture capitalists and there's probably 15 or 20 of them that were, were kind of screaming to pull their money to the portfolio companies to pull their money out. And so SUV kind of lost sight of their key customer. And I think there could have been ways they could have, you know, mitigated that risk. And you know, it's definitely sad to see. But yeah, you gotta, you know, protect you know, your companies first. So I don't blame the VCs for telling their, for the companies to pull their money out because of the way they're managing the money. But, but it is complex.

It is complex and we're still seeing shockwaves, so bigger things that are happening. Days before, another local San Diego bank, Silver Gang, decided to wind down because of its extreme exposure to crypto. Like it's, it's the bank for most exchanges, Coinbase and others because it was actually open to banking, you know, the crypto companies. So they're, they're winding down. You see that kind of news. Then you see Silicon Valley bank and how it affects locally. By Sunday, another bank, Signature bank was bank was taken over. You know, so there's this hype that's like banking what's happening. And by Sunday afternoon there is a lot of noise between all of us as founder, investor, community, a lot of texting, like I have no idea what's going to happen on Monday. So even me and my partner Al were like, we should be ready to do something for our own funds here because you know, shit could get real Monday morning with even more hysteria. Luckily the FDIC came out and said we're fully backing all deposits at svib. So there was a bit of breath of fresh air. People I think slept a bit more soundly that night knowing, okay, I will be able to get my funds. I don't think anyone anticipated that it would take days, if not five days, to actually access the SBB portal, which is pretty much what happened. The portal, everyone logged in first thing Monday morning. Some could get in, some could not. So there was still a lot of confusion there. And then by Monday night, SVB had said, we, we've got a new CEO, we're back in business, come back and bank with us. And everyone's like, wait, what? Like, I have no idea what's going on right now. I just, I just detected a lot of that emotional whiplash that happened from that.

Yeah. Another piece to add is just how fast Congress moved. I mean, obviously they could have moved faster, but for this to happen on Thursday, Friday and the weekend, there's panic not knowing if, you know, these funds would be fully insured, because at the time, 250, 50,000 would be insured by, by Monday, there was news that it would be full, 100% covered. So I would just say that there's good, there's good fake players like Gary Tan from Y Combinator, who got a list of hundreds of startup founders in Silicon Valley and beyond to sign a list, you know, saying that this is important. Joe Biden and those in Congress need to take this situation important because if not, it's going to affect other banks. And so kudos to them for, you know, moving quickly, even though the government can be a little slow here. And I would just say that, you know, the larger companies, aside from, I think Roku was one of them, but a lot of companies large, late stage weren't affected because they didn't have their money, you know, banked with SVB. But the early stage companies, they were putting $15 million just in one bank. And, you know, these early stage companies are focused on growing the business and they're not thinking about bringing in established CFO to think about these things. So I think it really hurt the early stage players the most.

Yeah, but the other side, the VCs were also banking SVB. And now while we don't hold all our funds at one time there, you know, we do capital calls quarterly or a few times a year. So we only have that much in holding that we're about to invest. Word on the street was that and Andreessen Horowitz had a billion dollars sitting at SVB and it was the only bank that they were at and, you know, had an LP call and said, hey everyone, we can't access this money right now. Which is all the Most recent capital call. So you know, the VCs were probably hit as well too in that regard.

Yeah, I didn't know that. That's great perspective.

Wow. Yeah. So come Monday, Melanie Gordon, who is Serial founder here in San Diego and Interlock investor came to me and said we should do a mental health check in with our founders and see how everyone's doing as well as just be a resource. And so quickly we put together a community wide zoom and held it Monday afternoon had about 50 people, maybe 50 to 60 over the course of about an hour tune in. We started building a resource list of here's the info and instructions from FDIC and stuff like that. So that felt good. A little cathartic to be able to talk about it. There was someone in real time we were trying to help access their funds, you know, so there's a little bit of problem solving but also just here's what I'm hearing versus here's what's being said. So that was a good check in in that regard. And throughout the week continue to check in with everyone. Many other banks continue to, you know, see ups and downs. First Republic hit stock wise. People still scared about what could happen there as well too. We've now had UBS or not ubs, Credit Suisse taken over by ubs. I don't, I don't know if the contagion's gone, you know, and I don't mean to, you know, feed this hype hysteria but banking usually is a pretty big signal macroeconomically of other things going on. So I am still keeping my head on a swivel right now and just you know, making sure everyone's careful because I don't think we're out of the woods yet.

Yeah, I would just say kudos to like people like Eric Otterson who is still working at sgb. You know, they really were people bringing people together through events. There were LPs and funds. People like Mike Crin at Connect with San Diego Venture Group. I'm sure he's working to support founders during this time. And yeah, I think we're kind of in a, a weird period. But you know, one thing about San Diego is we have resilient founders and Neil, you know this but you know this will only make us stronger coming out of this.

I totally agree. Yeah, I mean I think there was this overwhelming outpouring for her Otterson in that we knew wherever whatever happens to him like he is going to land in a spot where everyone's going to support him because he to us like he is svb, but honestly he transcends that. Like at Cooley he was that guy where if he ends up somewhere else, he will be that guy who is, you know, one of these community pillars, network routers, if you will. So while, you know, there's this. People are sharing their stories about svb, I feel locally really we're sharing our stories about Artisan now. The one other piece though that's interesting is Dave Titus, who ran San Diego Venture Group before Mike Kren, but co founded SVB 40 years ago. So he had a great post and we should link it just about his initial emotional reaction of, you know, what the community, what it felt like to see the community, you know, so quickly, what he said, turn on SVB, who had been there for 40 years for the industry. And I think that was a good real take for sure to see another community pillar who, I don't know if many of us knew he founded svb. And I didn't know if there was roots in San Diego either in that as well too.

Yeah, I did see his post and it was heartfelt. You know, he was there since early days and he now lives in San Diego and has contributed tremendously to the adventure community here. And yeah, it's, there's a silver lining, but it's still kind of sad to. Yes, that's definitely linked to that, to that post.

Yeah, we will link to it for sure. Well, you know, hopefully everyone's doing a lot better now emotionally and financially. We will report on any more to come from this. Definitely say I'm seeing still, you know, banks saying, I mean, I met today with, with Brex's head of startup programs nationally and you know, they're still seeing stuff ripples, right. So you know, let's keep an eye out on each other in our community and make sure that our founders just be able to get to stay focused on what we're trying to do, which is disrupt and build amazing businesses to change lives in a positive way. And this is just another distraction on the startup community over the last year, which we've had a lot of from ftx, from the stock markets generally just being down, which trickles down all the way to, you know, Assure, which was a BIG platform helping SPVs and funds be managed. It went bankrupt. So, you know, there's been a number of, a lot of hits just in the last year, let alone from COVID So, you know, I'd like some less drama please, if we could so that we could just get back to doing what we're doing. But you learn a lot during these times, that's for sure. This is when iron is forged. This is sometimes when startup founders say, this is the time I'm willing to take the risk, I'm going all in on something. So. So I'm keeping my eyes on that. Just like, who's pulling off the band aid and saying things are already risky. How much riskier could it be for me to leave my cushy job and go, you know, start a startup? So if that's the case, we want to back and support those people as they get going. Definitely. Well, there's other news going on too. The show must go on in other ways as well. You know, there's been some big fundings, which has been great to see in San Diego fashion. It's all over, not just software, it's in, you know, hardware. And so a local company that I think you've known for Quite a while, Fabric 8 Labs, raised a $50 million round from some local investors too. Take us through Fabricate. What do you remember and know about them?

Yeah, so they were founded in 2015, Fabricate Labs, they just got covered in the Wall street journal for their 50 million Series B rounds. The second round of funding, I covered them in the early days when they had raised, I think it was around 15 or, or 10 million from Anzu Partners, which is a local VC firm here and they invest into, you know, hard tech companies. And I think this company is really interesting because they're taking this technology where they can design 3D printed parts. I don't know to the extent of who they're working with, but, but I think raising from top tier investors, like a $50 million round really shows that they might be a big player or the leading player in this space.

Yeah, I remember when they came through Tecos Angels and I think they raised a little bit of capital from them as their preceder seed round. So that was probably four or five years ago. So it's pretty cool. Nea, who led the round, New Enterprise Associates is a big name investor on top of intel and tdk, who are more corporate investors doing joining this round. Those are big names. This is really great to see. What's cool about their 3D printing is that they're metal additive. So a lot of 3D printing starts in plastics or polymers, poly materials. But metal has so many applications and we actually played around with it a little bit from the rocket days. We launched the very first 3D printed rocket part to, through the space shuttle to the space station. I remember it was just like a, a space station hatch, like, you know, a little cover over an instrumentation port. That would have been like 10 years ago. So it's cool to see that the tech continues to be invested in and developed because more and more we need alternative manufacturing practices, especially with this shakeup of deglobalization, if you will. So not being, not wanting to rely as much on manufacturing in Asia, we're going to need real time manufacturing locally. And that's from like militarily. You know, if we need a part on demand, boom. You could 3D print anything right there on base or in the field to everything else. Like we've got some aging infrastructure around our country. I'm guessing not many engineers who design some of these bridges are around or sewer systems or maybe some original car parts. Imagine if we could scan, print and boom, deploy real time hardware within minutes. That's the big hope and dream that I'm excited that fabricated as part of.

When you were saying that, it kind of reminded me of another startup. I think they're based in Miami, backed by the Founders Fund, Peter Thiel's venture capital firm called Verta Space Industries. And they're kind of, you know, doing manufacturing in space. So I think, you know, in San Diego, there's a big military presence here. It'd be interesting to see if Fabricate Labs ventures into the, you know, defense or, you know, the space sector. So yeah, great point.

Yeah, I mean, real time on demand manufacturing, you know, at home is definitely a big thing. The other piece about manufacturing that I think Fabricate is, is landing on is the materials, the sustainability aspect of materials. So, you know, mining and other aspects of finding metals is, you know, super pollutive. And then the actual forging and creating goods out of it also pollutive as well too. I believe they're getting into kind of the green aspect of metal manufacturing. So that's really important as well, kind of the electrochemistry aspect, because that's what's happening. You're, you know, 3D printing raw materials into finished goods and that's a take for them as well. And kind of the sustainability piece that, that I think is important as well. Not let alone the carbon footprint of shipping, you know, partly finished goods across now you can do it in real time as well. So that's kind of cool to see the sustainability meets manufacturing tech. And who knows, like we said, all the different industries that it could apply to a few other, you know, storylines. We don't talk a lot about local funds because there are not a lot but one of the biggest funds locally is JMI Equity and they just raised their 11th fund and they're a growth fund. They, they definitely focus later stage like series B and later they just raised 2.4 billion for a new fund which is like quite, quite literally, you know, half of what San Diego raised last year in total. Now JMIs, they've been around a bit 20 years plus and you know, they are not just San Diego based. They actually I believe have an east coast presence as well in Baltimore. But they've, they've funded a number of some very local brand names for sure. I'm sure you've reported on a lot of JMI fundings.

Yeah, I actually just pulled up one of the articles I wrote for the Senegal Business journal back in 2021 and some of the companies they've invested in. Let me just pull it up here. So Lytics classy. I think is it Soci or Sochi?

Yep.

Which was raised a huge massive round as well and they had a number of exits and you know, I think it just signals that yeah, while there isn't a lot of growth funds in San Diego, this, this is one of the most successful ones. And being able to raise 2.4 billion is A. It's huge.

Yeah, yeah. They did seismic as well. So all pretty much, you know, most of our now unicorns or sunicorns, you know, they have been there for them definitely before the softbank days of just writing a giant check. They have been around for a while. I believe the founding team from JMI also come from successful tech backgrounds. Yes, as well. So you know that that's a story we also don't get to talk about nearly as much as the successful tech kind of recycling capital back into the community to fund more tech. That's what we certainly are hoping to try to get ahead of right now with Interlock Capital. So really cool to see JMI continue to do this and do it at scale. Definitely. Well, those are some of our big stories of the week. We the. You know, there's a number of other events coming up that are worth talking about. Jenna, pull a little bit from the Fresh Brew Tech newsletter. If you go to freshbrutetech.com, you can see all this as well too. We just did Dev and Data night recently which was super fun last week. And we've got another event by Fresh Brew Tech coming up in May, the Escondido AgTech gathering. It's a quarterly event we started to bring together farmers, technologists and scientists and you know, see where, where the intersections are for building Some interesting tech. MetroConnect program done by World Trade center is a great program to help startups find funding to they give them grant funding to launch into a new international market. So applications are open until May 18, so definitely go check that out. An event that, while not open to the public, is coming up and I'm pretty excited about especially that. Fred, you'll be there is interlock summit on April 20th. We're a month out depending upon when this recording goes. We've got, you know, close to, I think 100 CEOs, late stage CEOs signed up right now and I expect that to double as we get closer to the event. We officially announced our first speaker so far, which is David Freeberg of, well, he's known from the all in podcast. He's known as the Sultan of Science. And we'll be having a fireside chat with him talking about convergences of technology, which I think will be very real in San Diego because we've got interesting convergences happening. So keep an eye out for what's to come at interlock summit on April 20th.

Yeah, I would just say that Dev Night Devonite, you hosted Fresh Brew. Tech hosted was a big, massive success. I saw the photos and even Startup San Diego the first Mondays they had one in Tijuana and it's just good to see people get back out in person. Interlock Summit, I'm super excited for that. I think that's going to be something that's going to be a hit summit and thanks for all you do, Neil.

Thanks man. And you too. Really, really appreciate it. Thanks everyone for listening in. Feel free to join the conversations online. We post pretty regularly on LinkedIn, Twitter, Instagram about tech news here in San Diego. We mentioned our newsletter freshbrutetech.com where you can subscribe to it and we'll see you next time. See you, Fred.

See you.