The “extinction level event” for startups that YC President and CEO Garry Tan predicted in the early hours of SVB's collapse has passed and it's now time for startups and venture capitalists to get back to work, a Bay Area investor said.
Chon Tang, a general partner at the Berkeley SkyDeck Fund, the private investment firm that partners with UC Berkeley's SkyDeck accelerator, credits federal authorities with saving businesses that might have been at risk of folding.
"Decisive action by the Fed has essentially allowed the meteor to miss Earth. It came close enough that I am still concerned about some of the secondary effects on customers, on investors. … but I think in practical terms, it didn't hit Earth," Tang told me.
The biggest lingering impacts on startups will be losing customers because businesses across the board are becoming more mindful of cutting burn rates and reducing expenses. Those were concerns already, prior to SVB's demise.
During good times, the ecosystem creates a "positive, self-reinforcing cycle" where everyone is spending on software and services in an attempt to gain a competitive advantage, but that slows in a downturn.
"Part of the reason Silicon Valley is an exceptional ecosystem when the times are good, is that you have this ecosystem of amazing, aggressive, risk-seeking customers," Tang said. "Now we're in a bit of a negative self-reinforcing cycle. The big guys, they're cutting burn. The medium guys are cutting burn because they used to sell to the big guys. And the little guys used to sell to the medium guys, and now they're seeing their customers cut burn, and they're thinking, plus the SVB thing, I should really lean towards being cautious more than aggressive for the next year."
People are still in shock, and uncertainty remains about the fate of the newly formed Silicon Valley Bridge Bank established by federal authorities to replace SVB, but it's time to "get back to work," Tang said.
His advise to founders who are asking what they should do right now?
"My feedback to them is, it's business as usual," Tang said. "You've got to be at the top of the inbox for the investors that you are pitching. You need to get back on their radar and get back to work on your customers."
Tang is also warning founders to be wary of any investors that didn't immediately offer material support over the weekend before there were any assurances from the FDIC that all deposits at SVB would be guaranteed.
"Many VCs, including myself, made the offer of emergency funding for our companies, if that’s what it would take to make the companies succeed," Tang said. "Some VCs, however, apparently sat on the sidelines. They might see investing as 'asset allocation,' as if their responsibility begins and ends with wiring funds … Founders should avoid such VCs, and so should LPs, because I’m convinced they’ll under-perform in the long run."
