11 Apr 2023
Beyond the craziness of March Madness, March provided more ups and downs than entrepreneurs typically see in a lifetime. The lows of SVB contrast the highs of ChatGPT, says ICON's Head of US Tech Investment Banking Ben Kolada.
The dramatic collapse of SVB, the US' 16th largest bank with > $200bn in deposits, represented one of the greatest bank failures of all time – eclipsed only by Washington Mutual’s 2008 demise with $307bn in the bank.
The extraordinary pace of SVB’s failure was unprecedented; its bank run of $42bn worth of withdrawals in one single day on March 10 quickly surpassed Washington Mutual’s $17bn extracted over 10 days. Prior to Thursday March 9, 2023, SVB was in ‘sound financial condition’, according to the California Department of Financial Protection and Innovation.
SVB’s rapid downfall naturally had significant consequences for tech businesses here on US soil and beyond, with many temporarily unable to withdraw money from the bank and having to take out loans to meet payroll demands.
The scale of this impact was far-reaching - nearly half of U.S. venture capital-backed healthcare and technology companies were financed by SVB. Those holding sizeable uninsured deposits and a low cash flow faced the most substantial risks.
SVB’s venture debt business was a vital component of funding earlier-stage growth companies, and the bank’s departure has left a space in the venture debt market.
But from the loss of SVB, the tech industry quickly turned its attention to the riches of generative AI.
Adding to the March madness, later in the month AI research lab OpenAI released GPT-4, the latest iteration of the revolutionary AI system that powers ChatGPT.
Displaying its enhanced, more nuanced capabilities which elevate its use from improving efficiencies to assisting strategy, the GPT-4 demo saw the system describe why an image of a squirrel with a camera was funny. (Because ‘we don’t expect them to use a camera or act like a human’.) It also created a functioning website based on a rough hand-drawn sketch.
These ChatGPT developments catapulted generative AI technology to the tops of minds of entrepreneurs, investors and acquirers alike. ChatGPT was estimated to have signed up 100 million users in just two months from launch, making it the fastest growing consumer application in history.
Demand in AI, (as you can see in ICON's recent AI & DataTech Atlas report) has now grown feverish. So much so, AI caused us to nearly forget all the disruption caused by SVB.
The contrasting developments are a reminder that even though Silicon Valley actually can experience lows, the highs ultimately soar much higher.