So what has been uncovered in the week since we learned that Silicon Valley Bank was no more trustworthy than a crypto spam text? A startup culture once considered the gem of the economy has been exposed as careless with its money, clueless in its judgment of character, hypocritical in its ideology, and ruthless in exercising its political clout as a powerful special interest. Meanwhile, the financial world is still jittery, with other banks failing and just about everyone wondering what comes next. And from here on, the concept of a cap on FDIC insurance is at risk. But at least the SBV credit cards are working again. And VCs can take a victory lap as they brag about how they saved the day.
Things were so much simpler in 2007. I wrote about the then nascent Y Combinator startup incubator, and even sat in when investor Mike Maples first met with the founders of Weebly, a DIY website company. Since I wrote the story, Y Combinator has invested in over 4,000 startups, with a combined valuation of over $600 billion. Its initial investment in each company has skyrocketed from under $20,000 to half a million bucks. And Maples, then early in his investment career, has become one of the Valley’s top seed funders. His super-early stake in Weebly, for instance, paid off well—in 2018, Square bought the company for $385 million. It’s not clear whether the Weeblies deposited their winnings into a Silicon Valley Bank account.
Y Combinator’s model dovetails perfectly with the new startup ethic in Silicon Valley. It’s dramatically cheaper to start a company now than it was in the dot-com boom, and possible to build a substantial operation before requiring venture capital or achieving that liquidity event. (To pay salaries and costs during that time, one can get “angel funding”—less money than a VC firm pays, but in exchange for less equity.) Software tools, which used to cost hundreds of thousands, are now largely free. A wide variety of tasks can be outsourced cheaply. Computers, servers, bandwidth, and storage cost a fraction of what they did a decade ago. And there’s no need for a marketing budget when you’ve got internet word of mouth.
