100000+ employees won’t receive salaries this month, 1000+ startups will mass layoffs, And the reason is…

Yes, you read it right. 100000+ employees might not receive salaries this month, 1000+ startups might do mass layoffs, And the reason behind it will blow your mind.

If you are working for a startup which is incorporated in the US. There is a 7/10 chance that your startup is banking with Silicon Valley Bank.

It almost has a 25% market share in the US and yesterday Silicon Valley bank shut down.

The worst part, about $175B worth of deposits from startups are frozen and no one is able to withdraw money.

Insurance covers only 5% of the total deposits in the bank.

And this happened in just the last 48 hours. Here is an explanation of what happened in the simplest way possible:

You see Silicon Valley Bank majorly worked with startups. The US Federal Reserve raised interest rates, which made it more expensive for investors to borrow money. Overall startup funding scene slowed down because of that (hence many layoffs have been happening recently).

Because of this more startups were taking money than depositing. To give this money to its clients — startups, Silicon Valley Bank sold some of its investments, like bonds.

The bank had bought these bonds when interest rates were lower, but had to sell them when interest rates were higher, Which caused the bank to lose money. Like almost $2B.

When this news came out, The stock fell rapidly as a result more startups started to withdraw money in a panic since existing investors suggested so

That depleted the bank’s reserves even faster.

SVB tried to raise more money but they failed to do so. Eventually, the bank had to shut down and be taken over by banking regulators. This is could be the second-largest banking collapse after the Lehman brothers What does this mean?

If USA government and respective authorities don’t step in and bail out, 1000’s startups might lose the majority of their money, Leading to shutdown and mass layoffs. And that will definitely push the economy into a horrible recession.

If you think that this is happening in USA and if you are sitting in India, there will be no impact. You’re mistaken!

The majority of the Indian startups which raised funding are usually registered in US or Singapore And if they are registered in is, there is a high probability that SVB is the only bank they work with. Now, what are the top learnings from this?

Silicon Valley Bank’s failure is a reminder that having single points of failure can be risky.

If you have only one bank, consider getting a second one.

If you rely on only one marketing channel, start testing more.

If you have only one critical employee, consider training more employees.

If you have only one major customer, consider diversifying your customer base to reduce the risk of losing that customer.

By eliminating single points of failure, you can reduce the risk of a catastrophic failure and ensure that your business can continue to operate even if one part of it fails. Thoughts?