Venture capitalists ‘are contradicting each other’ amid Silicon Valley Bank’s collapse, reporter says

TechCrunch Senior Reporter Natasha Mascarenhas joins Yahoo Finance Live to discuss the Silicon Valley Bank meltdown and how venture capitalists are reacting, the road ahead for startups, and the outlook for tech.

Video Transcript

JULIE HYMAN: Thank you so much for being here. So where do they go? Like, does funding just dry up entirely? Are there other institutions that are now going to cater to these companies? What happens?

NATASHA MASCARENHAS: Thank you for having me. I think a lot of people are forgetting that there was already a downturn. And so it feels a little bit like the downturn collapsed and startups that were already struggling are gonna be struggling a lot more. So the two big questions that I'm hearing from startup founders is, one, where do I keep my money now that my trust has been broken and I'm getting conflicting advice from my venture capitalist, from the markets, from other startups?

And two, I mean, is this gonna happen at other banks? I know, over the weekend I spent a lot of time reporting on founders and VCs putting up their own personal capital to help meet payroll, which set aside a ton of legal questions and implications. And so that just gives you a taste of how frenetic the past weekend, let alone four days was, in Silicon Valley. So many questions from founders on the simple things, just like paying their employees. Let alone, acquiring companies or disrupting AI.

BRIAN SOZZI: Natasha, well, where does the money go from these VCs? They can't hide under their bed. Maybe they could.

NATASHA MASCARENHAS: [LAUGHS] So before, like I said, I think we saw venture capitalists being a little bit more risk averse due to the state of the economy. I think fundraising, from what I'm hearing, is definitely going to be slowing down as people evaluate their next steps. And from founders I'm speaking to, the general advice is decentralize where you're keeping your capital.

Do not put it in one bank, even though we understood why Silicon Valley Bank, the fact that it was with over half of US startups because of the way that it worked with them. Good for them. But now that it no longer exists, you need to diversify. That is the top advice I'm hearing.

As for venture capitalists and how eager they are going to be on spending their own money, I think it has either come from pressure from their own investors or a even brighter bright spot from a startup. But let's just say, I don't think the investing is gonna be happening super eagerly or at all like 2021.

JULIE HYMAN: Yeah, it definitely feels that way, Natasha, as we look at these companies and what they're gonna do next. As you mentioned, there's already been a slowdown in the industry. But at the same time, it feels like another bank is gonna see opportunities here to maybe tailor itself to these companies.

But the companies that you're talking, to the founders that they're talking to-- like usually when you figure out what bank you're going with, you're not worried about their solvency, right? That's not usually like a criteria that you're ticking off of your checklist. Is that changing for these founders? I mean, if they are shopping for another bank, you have to wonder if they're going to be applying a different lens.

NATASHA MASCARENHAS: 100%. I think a lot of people became banking experts overnight. And so big questions still to be answered. But just to give you a sense, I think the immediate question when SVB started to collapse was, OK, what does this mean for the banking startups that have been gearing up for this moment? That conversation started.

And we saw-- we saw an influx of one company, Brooks, get over $1 billion in demand from startups looking for its emergency credit line, representing over $10 billion of the deposits that were then locked up in SVB. That conversation just as fast turned over. Maybe you want to go to a private tech startup. But if you're a startup, do you want to go to a private company or do you want to go to a more traditional looking bank?

This is probably not the time for some investors that you should be risking with a, you know, private company. And so I think there's a lot of questions and, honestly, uncertainty. You know, venture capitalists, like I said, are contradicting each other a little bit here.

We're already seeing some of the alternatives that people were talking about, including First Republic Bank, Western Alliance, and PacWest down 60%, 66%, 45%, in their trading. And I think that gives you a sense of people don't really know where to go next. It just looks like they've to spread it out, which, you know, I wish there was a more clear answer or place to go next.

BRIAN SOZZI: Great insight here. TechCrunch Senior Reporter Natasha Mascarenhas, good to see you as always. Appreciate it.