The author is a partner at Sequoia Capital
Not many share the connection between Siena, the most majestic city in the mountains of Tuscany, and the highlands of Santa Clara, the city in northern California that is home to the Great America theme park and Levi’s stadium, home of the San Francisco 49ers. But there is a link and it has become painfully obvious over the past few days.
In Siena, the Monte dei Paschi di Siena bank has played an important role in the surrounding community since its formation in 1472. In Santa Clara, Silicon Valley Bank – or SVB as it is known – has earned a reputation as a pillar of the technology industry, since it opened in 1983.
The history and details of each bank are different. However, since 2013 when Monte dei Paschi di Siena melted into a shadow of its former self, the local community has felt the pinch. Businesses are finding it harder to get funding and many community organizations are losing important sources of support. Siena and the surrounding countryside are poorer because of the bank problem.
For those of us who have worked in Silicon Valley for the past forty years, SVB has been our most important business partner. Until this week we are always recommended to founders, after we decide to make a seed investment or venture, that they immediately open a bank account in SVB. It is no coincidence that the Atlas Stripe program, which allows companies outside the US to form US companies, uses SVB as its bank. (Sequoia was Stripe’s biggest investor.) Before SVB went live, it was difficult, if not impossible, for a startup to secure a relationship with a big bank. Small west coast technology companies are either unheard of or unimportant to large east coast banks whose customers include international airlines, heavy industry and national retailers. Our companies, often started by people in their twenties, are passed over or ignored.
As technology seeps into every crevice of the economy, SVB is gradually following suit. The bank is opening offices where the entrepreneurial bug is still alive — in the U.S. and abroad. Like all of us, SVB has had its ups and downs, but it has mostly stuck to knitting and its fortunes have mirrored those of the start-up economy.
In the wrong way, SVB has paid the price for his loyalty. Much will be said about the causes of death, but few will think about what makes us special in Silicon Valley. SVB stays close to its roots and its customers. When it collapsed almost all 40,000 customers were technology companies – a drop in the bucket for the big banks.
SVB is like a respectable local market where the people behind the counter know the customers by name, have a ready smile but still charge the price when selling cuts of meat. When small tech businesses run into trouble, we know we’ll get a sympathetic hearing but also pay the piper.
In the wider Silicon Valley community, SVB and its many employees can be seen, quietly and humbly, offering support to students attending college, tending community gardens, providing food banks, or providing companionship to the elderly.
I’m sure many of you will look at the deaths and the ridiculous amount of scaremongering on social media and laugh with glee at how the tech industry just got spanked. So it is. We are not looking for special treatment or handouts. If a bank fails – even if it’s our bank – that’s the price we pay for living in an economy where success is rewarded, and missteps are punished. But if adequate measures are not taken to ensure that tens of thousands of employers can meet their salaries and other obligations, the US’s hold on some groundbreaking technologies will be weakened.
But when a community loses its bank, whether in a Tuscan hill town or on the Pacific coast, it’s like a death in the family. Once again, the fate of thousands of small technology companies and the vitality of the startup economy will be back in the hands of strangers, and the US will be poorer.