As a 20+ year comms professional, economics student, and someone immersed in the start-up world, here’s my perspective on the Silicon Valley Bank (SVB) crisis.
It could have been only a cold but then it turned into fatal pneumonia because….
The Federal Reserve has been raising interest rates, which significantly reduced the value of SVB’s existing assets – e.g., if they had a Treasury bill (bond) paying 2%, and the government started issuing T-bills at 5% interest, those 2% bonds lost significant value and were no longer profitable to sell on the open market. SVB, needing cash flow, sold them anyway – at a loss of $1.8 billion.
During the same 24-hour period, Silvergate, the largest crypto bank, liquidated, which created an atmosphere of panic in Silicon Valley.
Then, SVB sent a press release about its capital raise, which was almost incoherent to the layperson, except for the part dropping the $1.8 billion bombshell about its losses.
Instead of clearly outlining the fact that they were raising capital and had an agreement with General Atlantic that would assist with the fund raise, the release consisted of granular details presented poorly. Thus, one’s eye was immediately drawn to the losses - which seemed to be downplayed - not the first paragraph, which tried to explain what they were going to do about it.
Had the release been written in clear English explaining that SVB was in the process of reinforcing the bank after the losses and then described the stock plan in less jargon, the run may have been avoided or at least minimized.
Such a release has to have the fingerprints of everyone from the initial composers to the C-suite, lawyers, and finance people. Based on the volume of people reviewing and approving it, the release could have been much more coherent – which may be why it wasn’t.
While the release did need to be filtered through the layers of management, many were focusing on their own interests and lost sight of their ultimate audience – the customers – who naturally sought to salvage their own financial situations, transforming the cold into a death knell.
At least new management has stepped up the SVB communications game. Here’s a copy of the letter to stakeholders.
Thanks to everyone who provided background and insights on this topic:
- The Jargon-Filled Press Release That Destroyed Silicon Valley Bank | LinkedIn
- Silicon Valley Bank shoots self in foot | TechCrunch
- Lulu Cheng Meservey on Twitter: "It’s tragic that Silicon Valley Bank could lose 80%+ of its value in a single day. But what’s crazy is that the financial collapse was largely driven by a communication collapse. Their storyline unraveled and their messaging went off the rails, in 4 big ways. (continued below)" / Twitter