There were many Silicon Valley accounts at recent days – Falling from grace of the mighty founders, the The collapse of the crypto industry And mass layoffs across the tech sector, For example but not limited to. But the stunning failure of Silicon Valley Bank, the region’s longstanding regular and one of the largest in the country, should finally force us to reconsider — and fix — how our tech industry works.

There seem to be at least two main reasons for being a “startup bank”. to fail. First, huge deposits were credited to their books in low interest securities, And they came from venture capital-backed companies burn money faster than expected, Just as VC financing in general has slowed. Second, the company and many of its start-up clients were beholden to a relatively small cadre of venture capitalists, and so SVB was uniquely vulnerable to running on the bank if those venture capitalists decided to withdraw their money at the same time.

This is it What appears to have happened.

Rising interest rates eroded the bank’s balance sheet, it did not have enough to guarantee a withdrawal of funds, and the attempt to raise capital failed – so prominent venture capitalists such as Peter Thiel and his founding fund advised their companies to exit. Word spread, and soon everyone was doing the same thing, fittingly enough $42 billion in withdrawal attempts.

As many have pointed out, the Bank likely had trouble brewing with the Fed raising interest rates and made its intent to continue to do so clear. And the bank should have conveyed its strategy to the account holders after the crisis seemed imminent, and so on. But even looking beyond the recent sequence of events, it should be clear that The “backbone” of the Silicon Valley startup ecosystem It has long been broken.

If SVB is vulnerable to rapidly rising interest rates, it is because it caters to an industry where dumping cash on uncertain companies is a norm, and venture capitalists competing among themselves to see who can make the rains harder. It is an inherently random system, one that generates recklessness at its core. It’s a little surprising, in fact, that it took this long for it to collapse under the weight of all that hard-to-deploy capital.

“Build first, ask questions later” philosophy, “move fast and break things” spirit; Your mandate to grow your platform at any cost then try to figure out ways to manage it, long after the Nazis have moved in; the unicorn or bankruptcy mentality that says nothing is worthwhile if the market cannot fit into world domination; These are all by-products of a system starting with a venture capital-led model of technology development.

Venture capitalists make their money by betting on a lot of companies in the hope that one of them will become the next billion dollar hit – with investments of this size, nothing else is worth their time. So you have thousands of companies with young founders who suddenly have more money than kings, charged with turning that into more money than God.

Often, they park their new load at the SVB. As such, the vast majority of funds held by SVB are not FDIC-secured, because each deposit is insured at a maximum of $250,000—only 3% to 6% of a bank’s deposit is small, by some counts. The typical startup has millions tied up in there.

It is not clear if they will see it again. SVB assets are being marketed, and while some are optimistic that a buyer will be found and depositors will become full, this is far from certain. If he comes up short, it would be a nice indictment of what Silicon Valley financiers really value.

Remember, all Elon Musk needed to do was snap his fingers and call some venture capitalists and JPMorgan, and he had a deal to buy Twitter at an inflated $44 billion price. SVB is the economic foundation for countless startups and technology companies in the region. according to New York times, As of 2015, it “serves 65 percent of all current startups and many of the most prominent venture capital firms”. If you can’t find a buyer, whether in a larger bank or regional investors, or a conglomerate thereof, you’d rather tell us where the priorities lie.

Because if SVB goes up, it’s the aspiring founders and tech workers who will be hurt the most. Banking companies with SVB are Missing payroll due to collapse. People who aren’t venture capitalists don’t get paid for their work, and people who work around the clock towards a dream they believe in (even if they also think it might make them more money than God) lose their companies.

As for venture capitalists? Sorry, they’ll have to do it quick – they’re in Aspen, almost to the top of the ski lift.

Now, imagine a model where an investor who wanted to invest money in a tech company evaluated the risks of doing so, or where the founders were made to prove their technologies were marketable before they got a Series A of $100 million or whatever. Imagine a world in which there were few men no Able to decide among themselves whether an idea is suddenly worth the GDP of a small nation-state, killing an entire industry without a sustainable alternative – or panicking each other into bringing down a major financial institution. Utopia, I know!

It’s time to find ways to constrain these massive and reckless flows of capital, or at least tax them proportionately, to get the tech sector back on the ground.

Because the alternative is obvious – tech products developed and launched recklessly, with a constant risk of total collapse affecting everyone whose address is not on Sand Hill Road.

“Stay calm.”

That’s what Silicon Valley bank CEO Greg Baker told clients Thursday morning in a hastily convened conference call to reassure them that the Santa Clara institution was confident it would face a liquidity crunch.

By the end of the day, when prominent venture capital firms urged their portfolio companies to get their money out, the bank had seen $42 billion in withdrawals. It was a full-blown bank run, a coup against one of the tech industry’s central foundations sparked by some of its strongest backers. The second largest banking failure in US history after the collapse Washington Mutual In 2008 it raised the specter of widespread layoffs in start-up companies and broader instability in the US financial system.

The tech company’s founder, Sarah Moskoff, was almost certainly a part of this rush for exits. By the time she tried to transfer a small amount of money from her account on Thursday, the bank had closed for the day. The deal was pending on Friday morning, when the California Department of Financial Protection and Innovation close svb and placed its assets into receivership with Federal Deposit Insurance Corp.

“I didn’t expect it at all,” Moscov said.

Countless companies across the country have finances intertwined with SVB in some way, including loans and cash sweep accounts. The bank, which caters to technology, venture capital and private equity firms, had about $209 billion in assets at the end of last year, according to the Federal Reserve, making it the 16th largest in the United States.

Now those companies must wait anxiously to see if and when they will be able to get a refund of the more than $250,000 that the FDIC guarantees, a scenario that could require more government intervention.

Mauskopf, the founder of babysitting startup Winnie, said she has dealt with SVB since founding her company in 2016. She is unable to access the funds needed to operate her business, including setting up payroll.

“When you can’t guarantee that employees will get paid on time, it really affects people,” Moskov said.

Even companies that do not directly bank SVB can face employee pay hurdles as a result of their failure. Human resource management firm Rippling used the bank to operate its payroll services, CEO Parker Conrad writes Twitter. Conrad said he has since switched to JPMorgan Chase & Co., but that payments that began earlier in the week could be delayed.

SVB’s problems stem from a sharp rise in interest rates that began last year and has undermined the profitability of its huge bond position. The acute phase of its crisis began on Wednesday when it sold a large portion of its securities at a loss of about $1.8 billion after taxes to make sure it could cover deposit withdrawals and start raising $2.25 billion in capital. As stocks fell in response to the news, clients smelled the scent of financial weakness and began withdrawing their funds to avoid being trapped in losses.

The FDIC said all depositors will have full access to their insured deposits no later than Monday. But only 12.5% ​​of its $173.1 billion in deposits are insured through the end of 2022, according to the bank’s annual report.

Jessica Mah, who founded the accounting software company DeNiro, said she has several clients with SVB accounts, including one with no more than $100 million in deposits there. Mah said some business owners personally consider payroll financing if they don’t have access to the capital by then.

Uninsured depositors will receive a custodial certificate for the remaining amount of their uninsured funds, which may be repaid in the future as the FDIC liquidates SVB assets.

It is possible that the federal government, worried about possible infection of other banks, will step in before then to guarantee all SVB deposits. Mauskopf said it was not a matter of whether he was a “rich capitalist”. [venture capital] Money is worth some sort of bailout,” but about whether companies can pay their bills with the money they’ve earned.

“I just want to make sure people understand that this has a real impact on real people who aren’t wealthy,” she said.

Some of the financial services companies that cater to startups, including Stripe and Brex, provide funds to companies like Mauskopf’s.

Mauskopf said Brex is offering an emergency bridge line of credit to SVB clients funded by third-party equity, and Stripe is offering a cash advance on future revenue.

One Los Angeles-based tech founder said he wasted no time moving money out of SVB once he heard about the stock plunge and was able to recover 85% of his company’s money, even though his company still had several million dollars left in SVB.

He also invests in startups through AngelList, a major platform for launching investment funds. Because AngelList banks with SVB, the capital he has through him is also frozen.

While many observers agree that SVB would likely have been able to weather its liquidity crisis had customers not attempted to withdraw deposits all at once, the tech founder said there was no incentive for people to show patience.

“There’s no reason to keep your money there because the downside risk, even if it’s 0.1%… is that you lose all your money,” he said. “I just don’t want to be a part of the last standing.”

William Hsu is the co-founder of Los Angeles-based venture capital firm Mucker Capital, which has hundreds of companies in its banking portfolio with SVB. Hsu said he worries about the potential repercussions of the bank’s collapse for all areas of venture capital, technology and startups in the coming weeks and months.

“I’m very worried about my portfolio companies and how they’re going to make payroll. I’m very worried about the employees that work for my company,” he said.

There are also legal ramifications for not paying employees, which can lead to mass layoffs because companies inadvertently let workers go.

Hsu is looking for other non-SVB-related sources of capital to connect his companies to the next payroll.

Hsu said Friday’s events are likely to paralyze the venture industry for months as the companies that back it struggle to stay afloat.

“That’s a lot of capital that stops coming into the economy,” he said.

Times staff writer Lindsey Blakely contributed to this report.

The lawsuit, filed Friday, describes how Du, then a high school student who was not yet gay, downloaded Grindr in order to befriend other underage boys. He then exchanged explicit photos and messages with the four adult men, who raped her in their homes or in parks, according to the complaint.

After the teen testified at their criminal trials, three of the four men were subsequently convicted of sexual intercourse with a child and jailed for periods ranging from 24 to 54 months, per the lawsuit. The fourth has not been located.

It accuses the company of knowing its product facilitates child rape, and the suit equates Grindr with other organizations such as the Boy Scouts of America and the Catholic Church that have “turned a blind eye to the systematic exploitation of pedophilia.”

Grindr is accused of marketing to children by virtue of maintaining accounts on Instagram and TikTok, the social media platforms where many brands — from other dating apps to alcohol companies — also have accounts.

The lawsuit also highlights two TikTok videos, which have since been removed by Grindr, in which adult content creators pretend to be students outside a high school or in a physical education class. The lawsuit alleges that the latter “explicitly occurs in an elementary school, middle school, or high school setting.”

“Through this TikTok video, Grindr is directly marketing to children and targeting them with messages implying that Grindr should be used in school, and that it should be used by children,” the suit states.

Grindr’s TikTok accountwhich has more than 138,000 followers, is routinely taken over by adult content creators who post videos on behalf of the company.

The lawsuit alleges that Grindr could have prevented Doe’s abuse by employing a third-party age-verification service, requiring government-issued ID to use the app, or blocking its use in schools, among other things.

Apple, Google and the entire tech industry need to work together to develop better age-gate technology that also respects user privacy, said Lenihan, a Grindr spokesperson.

Doe is suing Grindr for defective design, defective manufacturing, defect warning, negligence, and negligent misrepresentation. He is also filing a civil suit Under a section of US law dealing with human trafficking.