In the wake of the Silicon Valley Bank (SVB) collapse, commentators have rightly highlighted the additional risk that the bank bore by being so heavily concentrated in one sector: venture capital and startups. Less discussed are the benefits that such concentration provided. As regulators, VCs, and potential SVB buyers take stock of the collapse, it’s important that both sides of that coin get considered.
Silicon Valley Bank’s Focus on Startups Was a Double-Edged Sword
Sector specialization comes with steep risks — and high upside.
March 17, 2023
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Summary.
Silicon Valley Bank focused on the startup sector, and that’s part of the story of why it failed. Lack of diversification means more risk. But SVB’s focus has real benefits as well: It allowed the bank to build up a tremendous amount of tacit knowledge about how startups and venture capital worked. The best result would be for a big bank to buy SVB whole, so that that knowledge doesn’t get lost.