Silicon Valley Bank crisis unfolded with ‘unprecedented’ speed, Lux Capital cofounder says

Yahoo Finance’s Brad Smith spoke with Lux Capital co-founder Josh Wolfe and Austin Mayor Kirk Watson at SXSW 2023.

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SEANA SMITH: Yahoo Finance's Brad Smith, he's out at South by Southwest in Austin, Texas, where he's been talking with tech leaders and politicians about the Silicon Valley Bank collapse. Brad, I'm sure it is a very hot topic down there. What are you hearing?

BRAD SMITH: It is a hot topic, indeed, Seana. And one of the big things that we're hearing continuously in our conversations and interviews that we're having in South by Southwest in Austin, Texas, where everybody is invited to the barbecue, is just about the unprecedented activity that had to transpire thus after that collapse of Silicon Valley Bank.

And one thing that came up in our conversation, particularly with the co-founder and managing director-- managing partner, rather, of Lux Capital Josh Wolfe was just how unprecedented this is, number one, and number two, that there is so much more focus now on the regional banks and what the consortium of larger banks may have to do in stepping in to make sure that there is still that restoration of confidence in the banking system. Here's what he had to say about this and this instance, as compared to the Great Recession and the great financial crisis of years past, and what's taking place from his purview from the VC side. Here's what he had to say.

JOSH WOLFE: What's really interesting in the current moment is in 2007, when you had banking crisis, that was relatively contained at first from a media perspective. It took longer for only a much bigger impact to occur. This is almost unprecedented in 24 to 48 hours, the impact that you had on a bank run for Silicon Valley Bank, requiring the FDIC, the Treasury, and the Fed to step in and the president openly give comments to say, we've got your back. We're stabilizing deposits. But there's no bailout. Everybody that is involved-- stockholders, [INAUDIBLE] debt holders-- will lose their money as they should.

So the ripple, then, goes from SVB to First Republic Bank and some of the other banks that bank the innovation economy. And I think that's being backstopped. But there's a lot of concern. And the main lessons are diversify. You need resiliency. You need redundancy. You need a lot of banking partners. Hopefully, this gets contained, but there's a lot of peripheral risks. And that was really what the crux of his conversation and even his panel was about, which, typically, he mentioned that the topic that he was on for his panel with, which discussed this very collapse, to some extent, that it wouldn't have had much attendance in years past.

But today, he said it was a packed out event for his panel discussion. And particularly, what he also mentioned in the number of companies, innovative companies that rely on the regional banks for their first sources of fundings and even loans to really begin their businesses, in that they play a critical role in getting many of the startups that are represented here at South by Southwest, just that first step, that opportunity to even begin growing out their business before they get into the series A and the series B and C and so forth and even start thinking about a public offering. So regional banks play a very big role in this. And that's what makes what took place with Silicon Valley Bank that much more important to keep an eye on and the unprecedented response, as he put it as well. Dave.

DAVE BRIGGS: Good stuff. Brad, you also spoke to the Austin mayor. What'd you guys talk about?

BRAD SMITH: Oh, we just talked about the stars that night being big and bright deep in the heart of Texas. No, I'm just kidding. We talked about plenty. And particularly one huge thing that I took away from that conversation and the slogan that they have right now in keeping Austin weird is just how they want to embrace creativity here with their economy. And this is a boomerang mayor. Kirk has seen this before. He's seen the dot com boom and the bubble burst thereafter in his first term, and now he's back at it again, back on the saddle. And here's what he had to say about what's different this time around as the mayor of Austin for Kirk Watson.

KIRK WATSON: Yeah, well, it does feel like back to the future for me. And yeah, I was mayor and kind of navigated through the first big tech boom. And then shortly after I left, there was the bubble burst on that. And so we were just-- we were becoming a big city. We were becoming the place that people were looking to for the information and knowledge economy. Now we are a big city, and we have all of that diversity that you just talked about in terms of-- and I do see the way that we're working, that you're going to see a fusion of those kinds of things.

BRAD SMITH: Now he mentioned back to the future. I can confirm that he was not wearing the Nike self-lacing mag Marty McFly, of course, famed shoes. However, at the end of the day, he was very confident about what his partnership with some of the most creative tech companies as they've really created their own comparison to Silicon Valley in Silicon Hills here in Austin, Texas and how much this city can really be a focal point for technology companies that are looking to build even more of a presence in the South-- or the South by Southwest, if you will.

DAVE BRIGGS: We know you were wearing those Marty McFly auto-lace-up shoes. You are the minister of shoe game around here. Brad Smith, good to see you, my friend. Thank you. Enjoy the time down there.