Union Square Ventures co-founder Fred Wilson
Noam Galai/Getty Images for TechCrunch
Union Square Ventures warned portfolio companies in November to diversify their bank deposits.
The warning, which has not been previously reported, never specifically mentioned SVB.
But it came after a senior partner became alarmed after reading SVB’s financial statements.
When a senior Union Square Ventures partner was studying Silicon Valley Bank’s financial statements last November he became so alarmed by the bank’s financial condition that he issued an urgent plea to his partners: Alert every one of the firm’s portfolio companies to diversify their bank deposits and not be concentrated in any one institution.
The warning, which has not been previously reported, never specifically mentioned SVB. But it gave USV founders a prophetic message four months before the bank was shut down by federal regulators last week, sparking a banking catastrophe not seen since the Global Financial Crisis, according to two sources with direct knowledge of the matter who were not authorized to speak publicly.
“If you read the SVB financial statements, which most people don’t do, you could see an impending liquidity crisis,” said one source. “A liquidity crisis was quite significant and real.”
USV’s early message to founders illustrates how the warning signs were there that were missed by regulators, auditors, rating agencies, and most other venture firms.
It also shows how USV —an early backer of Robinhood, Coinbase, and Etsy — has been way ahead of other firms not only in savvy early bets on startups, but its prescient advice to portfolio companies.
Insider reported earlier this year that USV has delivered close to a 60% annual return, excluding fees, to one of its major backers, UTIMCO, which manages the $65 billion endowments of the University of Texas and Texas A&M systems — putting it in a league of its own among venture firms.
Venture investment firm Greenoaks Capital Partners also warned its startup founders of potential problems at SVB last November, Bloomberg reported. In December, a New York banker at a large financial institution started getting calls from current Silicon Valley Bank startup founders asking to open accounts, Insider previously reported. The entrepreneurs wanted to switch after being told by their venture investors that SVB was suffering from “liquidity issues.”
Founders Fund, the venture firm founded by billionaire Peter Thiel that backed Facebook and Airbnb, has been widely criticized for sparking a bank run last Thursday morning, after it warned founders to move their money out of SVB.
But Neil Ruthven, chief financial officer of Founders Fund, defended the firm as doing nothing more than protecting its investors’ money.
“Thursday morning it was clear we were in the middle of a bank run, and we reacted in line with our fiduciary duties,” he said in a statement to Axios.