Silicon Valley and the Future of Growth
What Happened?
So…is SVB still a company or not?
Has the FDIC actually guaranteed deposits? If so, how did they do this without printing money and taxpayers ponying up?
Back of the envelope math here, but wasn’t there like a $50B+ hole that needed to be filled once the bank “collapsed?”
It’ll probably be another few weeks before things fully play out, and I’m certainly not the right person to speculate on the future of the financial system, but there are implications for the tech sales community.
But first, some context is important. I tried my best to oversimplify so us sales folk can understand:
- SVB’s risk managers allowed the bank to use customer deposits to invest in relatively illiquid assets over the past decade.
- Rising interest rates increased the rate of customer withdrawals over the course of 2022. Cash left the bank.
- Simultaneously, rising interest rates decreased the value on the assets they were invested in. Primarily long-term bonds and (ironically) mortgage-backed securities.
- To increase their cash cushion, and make up for the rise in withdrawals, they sold ~$2B of those assets at a loss.
- This spooked the VC community and caused a run on the bank. SVB collapsed within 48 hours.
For a more technical, yet really concise and easy-to-consume overview of what happened reach out to Rich Wallace, CEO Arcana. He’s nailed it.
Growth Implications
After experiencing the tech bubble turn into tulip mania during COVID, I was all for this market correction.
Companies that were nothing more than souped-up, commoditized tools were getting billions in funding and hiring sales people at a rapid clip between 2020 and 2022.
These companies, many of them valued at $10B+, saw unprecedented growth given the infinite supply of money flowing through the economy. But when interest rates rapidly rose, the music stopped, and their growth halted because there’s no real business case for “nice-to-haves.”
And the SVB collapse just put more gas on this fire.
Take Slack for example. It’s competitive advantage is that it has a slick UX — a marginal benefit at best. Yet it grew to incredible heights during the tech boom as it became sticky with end-users.
Microsoft Teams and Google Chat do the same thing and are free when you buy the Office and GSuite platforms. In this environment, no CFO will approve of Slack-like products. Free will always win.
There’s not NO value in these companies. But in less than 2 years many will see a 50%+ write-down in value, and minimizing CAC will be the highest priority.
Sales teams will be decimated.
What should you do if you work for one of these companies? The good news is that platforms that have become imperative to their customer’s operations will see over 100% net revenue retention. Even during this down period.
Polish your resume and get into one of these companies. Snowflake and Datadog are great examples.
They may not win many new customers over the next couple of years, but they’ll see zero churn and expand at existing accounts.
Settle into an expansion role now, and when the economy rebounds, take advantage of opportunities focused on new customer growth — especially in the ClimaTech and Generative AI spaces.
