On Sunday, the Treasury and the FDIC, on behalf of the Biden Administration, committed to keeping depositors in failed Silicon Valley Bank (SVB) whole. The startup community exhaled a collective sigh of relief at the news.
This recent crisis underscored the need for a distant and sometimes antagonistic relationship between the US innovation economy and the US government. The fissure was most apparent as we watched tech leaders flail and fail to communicate with the right government officials, and the government’s delay in action or communication about the impending crisis.
Ultimately, the federal government moved to guarantee the deposits that were at risk for a few critical reasons:
- The distributed nature of small businesses impacted
- The scale of the payrolls that were affected
- The diversity of companies, many of them not tech-based, that were impacted
The distributed nature of startup teams meant that small towns outside of New York and San Francisco would be impacted immediately. Post-pandemic, entrepreneurs hired people from across the country, and many existing teams moved to mid-sized cities of origin to manage their costs of living. The collapse of SVB and the loss of capital for the 40,000 impacted businesses would have hit employees and families in mid-sized cities and small towns across the country.
The average founder leading these companies is 40+ years old and has a team of four to 10 people. In the wake of a financial collapse, an estimated $1 billion in payroll obligations would not have been met. This meant that families at these companies wouldn’t have been able to make mortgage payments or cover grocery or child car bills.
Ultimately those other businesses, and the wider economy, would have felt this impact right away. There’s a misconception that startup CEOs are living in hacker houses or with their parents; most are heads of households and not members of the 1%.
Most of the relationship between tech and government has been lopsided: The rest of society was relegated to one where we genuflect to the brilliance and mystery of innovation. The truth is that everyday people are building these businesses, and our collective success is interdependent. We should make an effort to build bridges to ensure that we know and understand each other before the next crisis that leaves everyone else in the crosshairs.
Knowledge is power!
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