The Collapse of Silicon Valley [Bank] and the Rise of Web3, Is This the End of Startup Culture?

If you've been following the news lately, it's become pretty obvious that Silicon Valley Bank is in deep trouble - what was once seen an unmovable cornerstone in the tech industry (SVB was seen as "the" place to bank with if you "made it" as a startup) has now effectively been shattered. What comes next is anyone's guess, but there are a few "likely" scenarios:

• If depositors above the $250k FDIC insurance limit want their money back, they're probably going to have to get it from the investors who put money in SVB itself: stockholders, lenders. (Which makes sense, since they agreed to the risk.)
• If there isn't enough money to cover for the losses, SVB will go under and everyone will lose their money, minus the $250k they're entitled to by the FDIC. With over $200 billion in assets, that's a LOT of capital that could potentially get wiped.
• There might be candidates out there that would want to buy out SVB for their customer list, but they will have trouble selling because whomever takes it will get saddled with a lot of liabilities and debt. If the bank ever gets to the point of a sale, it's likely to be at bargain prices.
• The "bailout" might come in form of a bridge loan - but they need to find someone who still believes in them enough that they can make that money back, with interest. The deal terms are not likely to be very favorable to SVB, either way. (The CEO and a few of their executives [which includes a former Lehman Brothers CFO] sold off their shares 2-weeks prior to the crash, on top of the whole thing.)
• Investors who followed the "cash is king" mantra that was going around last year will probably be the ones who end up winning in this scenario, because they're the best prepared to take advantage of cheap asset prices. Basically the fiat version of "buying the dip".

It's too early to tell where things are exactly going to go, but the panic is real: tech industry experts - including some very prominent ones - are now saying that "the end is neigh" for Silicon Valley as a whole. Is this it? Is startup culture really dead?

Startup culture isn't dead and will never die - like artists, society itself will always produce entrepreneurs as a constant. But the current form of it may be starting to smell kind of funny - this event may be what accelerates the industry's movement from Web2 to Web3. How? Well, we'll explore that train of thought a bit below.

Macro-Economics Observations (Fiat, Web2)

This is a very complicated topic with lots of moving parts, here I'm going to just list a few trends/observations made over the last decade leading up to now, particularly in relation to crypto and Web3. The signs were always there - slowly building up over time - waiting for things to finally tip over. We don't actually know when the actual tipping point is (including this SVB fiasco), but we do know that it was going to come eventually given that the current path was obviously unsustainable.

When, not if, after all. In crypto there is always a feeling of inevitability that comes with being interested in these topics - but we might finally start to see the cultural narrative shift in favor of Web3 platforms in ways we might not expect.

• The US has had a near-0 interest rate since post-2008, which people just got accustomed to as the "norm". Part of what we're seeing now is the cracks after having both inflation and interest rates shoot up to unprecedented highs. (The "rubber band" effect - SVB's inability to adapt to the Fed's rate hikes is what ultimately took them out.)
• One thing to remember is that the market highs of 2019-2021 were fueled by COVID spending, which - on top of introducing a massive influx of currency into the economy, also shut down the entire economy for a few years - something that has never been done before, ever. We still don't know what the full repercussions for doing so are going to be yet, but I think it's safe to assume that the backlash from doing so will be significant, given the sheer size and scope alone. The after-effects of said policies are finally starting to show up in official reports and business practices, now.
• There was a move to increase interest rates back to "normal" levels leading up to 2020, but after COVID hit, the Federal Reserve reset the interest rate back to 0, along with looser banking regulations that made "emergency" spending possible. The after-effects of said policies are also yet to be realized. (SVB is likely to be one of the beneficiaries of said de-regulations, at least in the short-term.)
• The government has no way to "bail out" these institutions since they've already spent so much in the last few years - if they print more money, inflation will go up; if they do nothing, depositors will lose their money. The tech industry and government typically are not natural political allies (they're always playing a cat-and-mouse game when it comes to regulations), so it's much more likely (compared to 2008) that they will let it fail.
• SVB had their hands in real-estate as well (rumor has it that they offered house-buying services for their favored clients), which is already struggling in the Bay Area as of this year. We may see this situation play out similarly to Evergrande in China, where the government allowed the company to fail and go through repossession/dissolution.
• "Cash is King" will likely be the mantra over next few years, as the investors who cashed out or held onto cash during the top of market will likely be getting bargain deals on insolvent businesses that are desperate to sell quickly. It will be a buyer's market for the savers, and a rough time for those who overleveraged during the highs.
• VCs and investors are now valuing revenue and profits more than they used to in the past. The Web2 model valued startup founders who had "total control", mostly because their value was concentrated in their ability to fundraise - which was the primary way startups stayed afloat during the era of 0 interest rates. With less money to go around, it seems likely that the balance of power will start to shift away from that model.
• Tech founders, celebrities and influencers who are currently popular will likely get replaced by new "champions" in the space who can figure out how to thrive in the new economy. (Profits/Revenue > Views/Clicks) Some legacy celebs might be able to adapt to the new context, but it will likely be very difficult.
• Similarly, there are players in the tech industry (especially international players) who see the collapse of SVB as a good thing - it loosens the grip that Silicon Valley has had on being the "face" of tech. Maybe now startups outside of the very specific Bay Area Silicon Valley/San Francisco area will finally get some face time? Time will tell.

How Does This Affect Web3/Crypto?

Course it may be too early to tell, but here are a few signs and ideas that have emerged in recent days:

• The crypto markets dipped slightly after the news of SVB came out, but not more than usual. (5-10% swings happen all the time in this market.) There is the theory that fiat money that lost interest in crypto after the hype already pulled out at this point, so the impact on prices should be minimal. Time will tell.
• There is a chance that people who became disillusioned with fiat and the banking system may be inclined to more seriously look at crypto as a place to park their money. Sometimes it takes a crisis to get people to try something new, and this could be it.
• Loosely speaking, the "culture" of Bitcoin is finance; Ethereum, Silicon Valley. (It was different in the past but that's what it evolved into in recent years.) SVB is where the two worlds collide - which puts both worlds in peril. This is a setback for BTC/ETH in particular, since they're much more likely to have connections to SVB due to its close connections and proximity to the ecosystem as a whole.
• Web3 and crypto startups (the majority of them ETH) may experience significant delays - potentially permanently if they're not able to make payroll next week. Either way, it puts a dark cloud on Silicon Valley-backed Web3 startups as a whole. (It's an opportunity, however, for alts who are further removed from the crisis to stand out.)
• Some are claiming that the failure of SVB was its over-centralization - the whole startup ecosystem running off of 1 or 2 banks in Silicon Valley was seen as too much of a systemic risk. What can we do to make the financial system more decentralized? Is there possibly a movement somewhere that is attempting to do that very thing? 🤔🤣🤔
• This event has shattered the confidence people had in Web2 projects in ways previously not seen before - so there's likely to be a shift in the way startups are talked about in a political/cultural way. What that looks like is yet to be seen, but it is coming, one way or another.

The irony of the whole SVB scandal is that Bitcoin itself was created after the 2008 financial crisis, which was a direct result of Satoshi attempting to "solve" the problems of the banking system itself. After a few crypto bull/bear cycles, we now find ourselves in a similar situation again, with no clear remedies in sight - did crypto do anything to stop this? Not really. Then again, it's not like the big banks were ready to integrate the new technology in their day-to-day business practices anyway. (Not yet, anyway.)

There's a lot to be said about the whole thing, but the one thing that crypto does very well is that it doesn't allow for uncollateralized money to exist on the blockchain, because the risk of disappearing and not paying you back is too big to even consider. So a loan of $1000 has a minimum collateral of $1000.01, just to make it worth the time. No more IOUs or blank checks that may or may not process properly since you don't even know what goes on behind the doors to begin with.

So if there's a silver lining to all of this, it's that for every problem of this nature that we see, it seems almost obvious that crypto/blockchain projects already has an answer to it. If there's a time for Web3 startups to position themselves as part of the solution and not part of the problem, it would be now, imo.

Good luck, folks: change is coming - some good, some bad - but it's our jobs as entrepreneurs to figure out where the bright points are in any given situation, and this is no exception. If it's going to happen anyway, might as well make the best of it, right?