Venture capitalists and tech entrepreneurs exchanged frenzied WhatsApp texts that fuelled a historic run against Silicon Valley Bank on March 9. Other important clients of the lender were also working in the dirt, unaware of what was about to happen.
Jasmine Hirsch, Hirsch Vineyards’ general manager in Sonoma, stated that she learned about the $42bn bank from a family financial contact the day before federal regulators rescued the lender. She had not been aware of its problems.
She said, “We weren’t in the VIP group chat.”
She has been astonished by comments made by SVB customers in the weeks that have followed, indicating that they should have done more research on the bank.
She said, “I’m like: “When was the last time you looked into your bank’s balance sheets?” “Like, we’re farmers! “We are confident that our bank will be there tomorrow!”
SVB is being sold in pieces by the government. Vintners in the fertile regions north of San Francisco are at risk of losing a crucial partner. The SVB’s wine division has been an important pillar of the sector. Since 1990, it has loaned more than $4bn to wineries and published an annual State of the Wine Industry Report that is so well-received in the New York Times.
Paul Mabray (CEO of Pixwine), a platform for wine discovery, said that the wine division was the “gem” of the bank and added: “It was deeply ingrained in our community.”SVB had $1.2bn in winery loans when it crashed. As they deal with rising costs and worsening climate change impacts, their clients are worried about how they will get funding.
They are right to be worried. Wine business is known for being risky, slow and low-margin. It worked because of the prestige it brought to SVB.
Alessandro Chesser, a former employee of SVB and a banker with it ever since, said that “startups and wine — they connect really well.” “SVB would receive wine from wine customers, and then send wine to start-up customers.”
A top VC fund executive recounted how SVB asked him to sponsor an event. “Why don’t you just provide the wine?” was the response. They added, “There was a clubbiness about it.” “A New York- or London-based bank wouldn’t offer wine for your event.”
Another venture investor stated that wineries need loans because of the relationships they can build — the potential to draw deposits or underwrite deals.
This person spoke out about vineyards, saying that they are “all passion projects.” “You would [bank] them if you care about those wineries’ owners — who are VCs.”
It is not clear what will happen to SVB’s wine division. It is possible that a buyer who is less dependent on these technology relationships might not be tempted to buy it. However, it is also possible that it could operate independently.
A Napa wine company marketing director, who declined to be identified, stated that they were confident that the wine division would find a buyer.
This person stated that “this industry is full of solid assets — dirt grapes, brick, and mortar — so it’s difficult to imagine those not being attractive to whatever bank picks the balance sheet.” “Much more than tech start ups, I would think.”
This sunny outlook is not shared by everyone. Tourism, which used to account for over 50% of all sales for small wineries before Covid, has been hit hard by wildfires and a pandemic. Rob McMillan (Silicon Valley Bank’s wine expert) wrote in October on his blog that the mood has changed significantly from last year.
SVB’s January annual report revealed a long-term crisis. Younger people preferred kombucha to cabernet and merlot.
In the 2000s, the wine industry had grown by 20 percent per year. However, it fell to 10 percent in 2010, stagnated in 2016, and has been shrinking for the last two years. Only 60-90-year-olds were the most successful consumers.
McMillan, who lamented to The New York Times January 2012 that the industry’s inability appeal to Millennial customers was “worse” than I thought, added: “I’ve been discussing this problem for seven year and we still haven’t reacted.”
The crisis is now more severe and personal. McMillan wrote a blog on Sunday about “one of my worst weeks”
“All I knew was that I had lost a significant amount of money in bank stock and the FDIC had granted me a 45-day contract to do work for them. He wrote that this would make anyone anxious.
He said that a buyer would be found within three weeks. Additionally, he and Jed Taborski, the division manager, have received more than 12 calls from interested parties to discuss the possibility of a separate purchase.
This would be a great idea for some of her clients. Hirsch stated that she opened a bank account when federal regulators overtook SVB. However, she has not yet been able to deposit funds. She hopes that she doesn’t have to, as shared by many who also benefited from SVB’s personal service and close relationships.
She said that everyone is saying “Everybody’s kinda saying like, Isn’t it the safest place right now?” She cited letters from SVB stating that they are open for business, honoring loans and looking for new business.
Some in the community feel that the entire situation could have been avoided had Tech Bros along SVB not pulled their cash from SVB masse .
One wine executive, who did not want to be identified, said that “the navel gazing insularity and that world — they brought down their bank!” It’s ironic that it’s tech bullshit. No offence intended, but do you not think tech kinda ruins everything it touches?