Silicon Valley Bank's meltdown shows that tech's elites need the government after all

A man stands outside Silicon Valley Bank
Certain loud voices in the tech industry rail against big government and regulations. But when the government stepped in to help Silicon Valley Bank depositors, they welcomes it with open arms.Getty Images
  • Many tech execs and VCs fight against government intervention in the industry.

  • This libertarian streak was broken as many realized the government had to step in as SVB collapsed.

  • The Silicon Valley Bank meltdown is teaching the tech industry that regulators are sometimes needed.

The elites of the tech world, especially some high-profile venture capitalists, traditionally decry the notion of governmental influence on Silicon Valley.

But as the fallout from Silicon Valley Bank's sudden collapse last week continued on into the weekend, those same tech elites found themselves calling for the Federal Deposit Insurance Corporation (FDIC) or the Federal Reserve to step in and bail out the bank. Or, at least, for them to guarantee that depositors would get access to their cash.


Prominent angel investor and Elon Musk ally Jason Calacanis made waves on Twitter with his all-caps calls for federal intervention over the weekend, as did "All In" podcast host and well-known tech exec David Sacks — both of whom have in the past railed against regulation and the idea of big government in general.

It wasn't just VCs — the investors that write checks to startups and help them get off the ground —  that called for the government to step in.

Billionaire investors Bill Ackman and Mark Cuban both urged the Biden administration to take swift action. Cuban has in the past supported regulation for some areas of Big Tech but has firmly come out against the idea of breaking up companies like Amazon, while Ackman has fought with financial regulators over the years.

On Sunday, SVB's customers got the best possible news under the circumstances when the government announced that it would make sure that everyone was made whole, even above the normal $250,000 guaranteed by the FDIC. The news was met by cheers from VCs, startup founders, and anyone else who does business with SVB.

In other words, many of those tech investors who normally balk at the idea of the government giving a helping hand found that the salvation of the VC ecosystem will be found in Washington, DC after all. With access to their money now guaranteed, startups and anyone else who does business with SVB can now be much more confident that they'll be able to make payroll and pay their vendors.

Tech's relationship with regulation has long been contentious

Government regulations, some of tech's most vocal figures contend, can stifle innovation and creativity.

Startups and big tech companies will happily sell technology to the government, but some vociferous critics will fight tooth and nail against the idea of the government having any say in how those products are built. This perspective can often inform how tech insiders view the idea of banking and financial regulations, privacy policies like California's CCPA, support for politicians, and approach to healthcare.

In a somewhat ironic twist, however, the SVB fallout may result in a push for more regulations, or at least more monitoring, of financial institutions and other regulated entities. But that may be welcome news, too: Amid the chaos, many in the tech industry took to Twitter to question how regulators allowed SVB to reach the point of insolvency.

Tyler Griffin, managing partner at early-stage VC Restive Ventures, told Insider that government banking regulators would likely take the opportunity to try and shore up the banking system to prevent the kind of panic-driven bank run we saw last week. He supported the government's move to intervene in this case.

"I would suspect that this failure will result in some significant changes to banking regulation," Griffin said. "My logic for that is it isn't sustainable to have a run on a bank triggered mainly on Twitter."


Very few in the VC world believe that the move to protect depositors will be bad for the industry's overall health. But it is a reminder for everyone that wants to prevent the government from enacting regulations meant to protect consumer interests that, in the end, VCs will need the government one way or the other.


Read the original article on Business Insider