How the collapse of Silicon Valley Bank affected one startup

2024-12-25 22:39:12 source:lotradecoin insights category:Scams

Customers of now-collapsed Silicon Valley Bank are being told their money is protected and accessible. And speaking Monday morning from the White House, President Biden assured banking customers that the broader U.S. banking system is safe: "Your deposits will be there when you need them."

Those customers include tech entrepreneurs like Tiffany Dufu. She's the founder and CEO of The Cru, a startup that helps women achieve their personal and professional goals. Her company has its money at Silicon Valley Bank and late last week she found herself scrambling for the funds to make payroll.

Speaking on NPR's Morning Edition, Dufu told Sacha Pfeiffer that she and many other tech founders don't fit the Silicon Valley stereotypes.

"I think that sometimes when people think of a tech founder or the tech sector, they think of Mark Zuckerberg. I am African-American and I have two school age kids. I'm in my mid-40s. Founders are people who have a problem they've identified that they're trying to solve for a consumer. In my case, one in four women have considered leaving their jobs in the past year, and we partner with their employers to try to ensure that they have access to the resources that they need."

Dufu argues that she represents an especially vulnerable portion of the tech investment community.

"Less than 1% [of tech sector investment capital] goes to black female founders. So there are a lot of underrepresented founders and leaders in this community who were grossly impacted by this. There's not a lot of liquidity. We don't have large assets to draw on. And so this really created a crisis for us."

Douglas Diamond, a Professor of Economics at the University of Chicago, focuses on banking systems and the forces that can lead to a bank's collapse. That work earned him the 2022 Nobel Prize in Economics.

Diamond points to an area where Silicon Valley Bank violated basic banking practices, telling Morning Edition host Leila Fadel, "Banks do their magic by diversifying their asset risks, having lots of different types of loans, in particular, avoiding an overload at any particular risk. The one they loaded up on too much was interest rate risk. You're also supposed to use diversified funding sources."

Those gambles made the bank especially vulnerable to interest rate fluctuations. When rates were low, SVB was in solid shape.

"If interest rates went up a lot, they were going to become insolvent."

Interest rates did go up and late last week SVB stumbled into insolvency. Diamond says that some of the blame may lie with the Federal Reserve Bank.

"Maybe the Fed should have been thinking, 'I shouldn't raise interest rates this quickly if it's going to wipe out certain parts of the financial system'".

For Dufu, the Silicon Valley Bank failure is distinctly personal. She felt she couldn't wait around for the eventual fix by the FDIC that assured her company's assets would be protected. She had a payroll to meet.

"I already had to step into gear. I already had to figure out how to transfer money from my personal account to make sure that my team was taken care of. And I'm a very fortunate person to at least have a savings account that I can draw upon. [It's had] an enormous impact just on my well-being, my health and my sanity, let alone everything else that we're already doing in order to keep these companies thriving and successful."

The audio version of the interview with Tiffany Dufu was produced by Destinee Adams and edited by Kelley Dickens. The interview with Douglas Diamond was edited by Alice Woelfle. Majd Al-Waheidi edited the digital story.

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