The Real Reason Silicon Valley Bank Failed –and why your startup still might.

“The thing that started it all is the fact that VCs stopped giving companies money. But they didn’t do enough work to help founders cut burn! ” - Chamath Palihapitiya, 03/12/2023

By now, you’ve heard. The second largest bank failure in US history took place over the weekend. SVB, a 40 year old institution that helped grease the gears of the tech economy got caught in a vicious market squeeze and was forced to close.

ICYMI, Here’s a primer…

The Fed’s recent rate increases pummeled the bank’s fixed income portfolio at precisely the wrong moment. The ‘wrong moment’ was actually a span of about a year where SVB’s core customer base, tech startups, had been sucking deposits out of the bank to weather a frosty fundraising environment as they continued to burn cash.

The bank’s attempts to replenish its cash fell flat. Then, ‘hair on fire’ language from some famous VCs spooked already jittery tech founders. And like campers trying to escape a bear in the woods, they decided to race one another out the door. It was a classic bank run.

48 hours after their emergency attempt to raise capital, the 16th largest bank in the country closed for good.

The next day the FDIC took over and promised depositors they would be made whole.

Today, thousands of tech founders are trying to regulate their cortisol levels as they unwind from surviving a near death experience.

The Lesson

So, here we are…on the other side of another black swan event.

What have we learned?

More importantly, how will we change our behavior?

And what about Chamath’s fiery remarks on the issue? Do VCs bear responsibility for not enforcing financial discipline at their portfolio companies?

What about the founders? Why are they still spending SO much money?

In SVB’s mid-quarter update last month, the bank said “Client cash burn remains ~2x higher than pre-2021 levels and has not adjusted to the slower fundraising environment...”

That line sorta takes my breath away.

Look, we can’t control capital markets. But we can control how much money we spend.

As founders, it is our solemn duty to make sure we never send good money after bad. When we do, we leave ourselves at the mercy of investors and bankers to fund our vision. And that is no way to design the future.

This is probably a good time to introduce ourselves.

Hello, we are RealEstateAPI. We’re a data as a service company. We were built from the ground up to serve tech company founders.

Our clients work at the intersection of PropTech, Insure-tech, Home Services and other Place Based Technologies. Many have built products on our platform that redefined their industry. We make it easier and radically less expensive for them to get the data they need to bring products to market fast.

We’ve never posted to Medium before, but something about this unfolding crisis compelled us to speak, and ultimately, act to try and help this community.

Probably, it was the Tweet storms from small company CEOs who came within an inch of losing it all.

How do you not root for a founder that’s putting it all on the line like that??

We sure do.

If this is you –or who you strive to be- and you operate in our niche, we have an offer…

The Opportunity

If you’ve been impacted by the SVB collapse, and your business relies on property data, we can give you a free Starter plan to help you cut costs, or innovate more quickly, or both. We regularly save companies 50%-60% on their data procurement spending. That’s real money. The kind of money that helps you make payroll with room to spare.

If you’ve been considering a change but have been too rattled by the turmoil in the market to attempt anything new, this could be a way to organize an orderly switch.

We know now that the feds did the right thing, and depositors did not lose the money they had with SVB. But they could have. And that should be terrifying to anyone reading this.

But more than terrifying, it should spur every one of you to take a searing look at your own burn rate. Where are you spending money?

Maybe you’re locked into a six-figure data contract because you assumed that was your only option. Maybe you’re considering one now. Unless you are prepared for all the other costs that come with managing bulk data, I would urge extreme caution.

This is no time for free-wheeling and fast spending. Belt-tightening season is upon us.

This is a time to squeeze every glob of toothpaste from the tube! Whether you fold it or roll it like a burrito, it’s time to get OCD about getting the most out of your ops budget.

The Warning (another cautionary tale)

One final story.

I recently had lunch with a C-level executive at one of the largest data companies in the country. He shared with me that there is a sizable portion of their customer base who “bit off more than they could chew”, meaning they entered burdensome data contracts before they were ready.

The bigger tragedy is that many of them never even used the data. The drag of that monthly expense kept them from being able to afford to do anything with it.

Many had to cut corners on the product they’d dreamed of building. Others pivoted to a new idea or worse, let their vision die. The burden and the distraction were too much to manage and the companies folded.  

It doesn’t have to be this way. But you have to cut the burn.

We can help.

Here’s how to reach us:

Email: dev@realestateapi.com