Though it is widely publicized that he was pretty aggressive at getting YC startups to move their money out yesterday.
It's not altogether unlikely that other groups of startups, without an aggressive push to pull out of SVB, are in more trouble.
That is also a lot of startups in a very short window of time. Startups don't exist in isolation, and, for better or worse, often actively try to purchase each others products when possible. It is an ecosystem.
I work at an IPO'd SaaS company, but a lot of our customers are startups. If 30% of our startup customers suddenly can't pay their bills that impacts us in a big way. On top of this, like most companies, we were already concerned about how we were going to meet profitability goals.
And again, the short time frame means not a lot of time to respond and adapt.
It is not just 30% of YC alone.
YC startups tend to be on average more successful than others, so number probably much higher for other startups.
Not making payroll is just the first problem. Vendors are the next ,
many startups provide critical services from healthcare to security to dozen other sectors if they cannot pay for their servers those services will go down too
a lot of products such as saas apps , cloud services are sold to startups extensively.
If collectively startups stop making payments, those businesses become unsound even big tech like AWS will feel pain and mean layoffs everywhere.
Not making payroll for tech and tech adjacent people also means lot of local business will be distressed in those communities think your grocers and barbers etc.
YC startups tend to be on average more successful than others,
Is this true? It it true for the median? YC appears to have a portfolio of startups that has better returns than average seed VCs. This means that somewhere in the huge number of companies they fund, there are some massive wins. But way more often, they just lose a few 100k on a startup that goes nowhere.
So even if it's true that the average return is better, the median return is probably similar or even worse (seems YC can probably afford to take bigger bets than smaller less known funds, resulting in bigger wins as well as more failures- the latter all having a capped downside).
Anyway, maybe I'm wrong, but it's not obvious to me that if you picked 10 yc startups and 10 other vc backed startups, the yc ones would be likely to be in better financial shape, even if the portfolio returns are better
> many startups provide critical services from healthcare to security to dozen other sectors if they cannot pay for their servers those services will go down too
I don't know how this works in the US, but there not some kind of clause or law which basically prevents critical companies from becoming bankrupt like this?
In my country, vital infrastructure is supposed to have money on hand to keep the infra chugging along while the company gets put under administration. (or nationalized, depending on the political climate and what it provides).
It is very hard to keep supply chains segregated like that and also expensive.
Even military industrial complex which have a sharp focus on kind of independence and budgets to see it through trips up constantly and just find out some core components are coming from foreign sources that can be fragile or threat .
Just as we are discovering last couple of years whether with baby formula or chips sometimes there are risks in the system which no one knows or can’t do anything about .
Not to mention such reliability costs money no one is ready to pay for .
We used to use regulations to limit this kind of damage, but those have been removed to allow for money to be made. So instead of proactively preventing these tragedies the government is there to help clean up the mess.
> It is not just 30% of YC alone. YC startups tend to be on average more successful than others, so number probably much higher for other startups.
It's the opposite. 99% of startups do not bank with SVB and/or have less than $250K in SVB.
If this were a public ledger we could talk about exactly what the situation is. Instead we'll get lies and half truths from those jockeying to tilt things in their favor.
I think BruceS warned us all about this at south by about ten years ago [0]. Forget exactly where it happens in this talk but he basically tells the audience that if they want to live by disruption, they will die by disruption, and that they have built their castles on shifting sand. Great talk imho
edit: this is actually a long now talk, will edit later if I find exactly the talk am looking for, but should be close
SVB made bad bets and mismanaged risk. These firms should fail to make room for better firms. And people that work with mismanaged firms will often take a loss, often via bankruptcy.
Startups liked SVB because they would take risks big banks wouldn’t. Well risk comes at a cost.
The government’s role here isn’t to make everyone whole. It’s to prevent contagion.
Given the # of startups the YC program creates with every new batch, and proportionally the success of YC to all other types of startups, this seems more fair to say, though it does seem a bit hyperbolic.
