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by ranman
1196 days ago
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>SVB represents $200B assets and the customers are in large part revenue negative or growing startups. That doesn’t make it Ok but it cannot be representative of the greater economy. There are ~1900 publicly traded companies with a market cap over $1B. (NAMER)
There are over 1000 privately owned companies with valuations over $1B. (NAMER?) Writing off startups as not contributing to the economy (jobs, spending with vendors, etc.) is a harder to argue in 2023 than it would have been in the past. This very well could be the beginning of a stall in the greater economic engine. Except this time it isn't necessarily fueled by failure of the underlying assets. Instead the underlying assets may fail because of the banks. Which could cascade into additional failures across the system. |
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Also, 1B valuation in an asset bubble doesn’t really mean much with rosy assumptions on price to earnings ratios that is unproven. Unless that 1B company translates to public through an IPO that 1B valuation can be 10000B it really doesn’t yield any concrete value. Pre-market due diligence is a dark art and venture capital is operating on perverse incentives to value things. If you take out a large loan on your holdings in a 1B private asset light intellectual property light cash burning business then that person issuing the loan is irresponsible. Same thing with housing inflation, pointing to comps and estimated growth since that sale leads to inflated valuations. Except there aren’t many comps in a startup space and banks and credit unions are smarter at not giving out more money than they can collect back through a sale in the range of 300k-1M.
Sounds like there was too much deposits and the demand for returns made the bank choose a time risky purchase if interest rates rise. Then they did over a year. Then cash hungry customers made a run after rumors.
What does that mean for JPM and Wells Fargo and Blue Cross and Humana and GMC and Maersk? Not much because (I really hope) they’re not hedging their accounting in shares of a high risk VC regional bank.
Businesses need to adapt to higher interest rates and that alone is going to take the wind out of the sales of some speculative business models. The bank was underperforming on returns from their accounts so they chose an irresponsible bet.
In the US we need to collectively get of the cheap debt sugar rush and check the assumptions in what is viable growth and valuation. But that doesn’t mean the sky is falling because an AI healthcare startup cannot raise their next funding round.
The major banks should be good because they’re stress testing. The cheap money and every new company getting the cash to scale as has been the case for 10-15 years is likely behind us.