The collapse of Silicon Valley Bank, and several others of slightly less familiarity, has the market in a panic. We heard from startups over the last few days that payroll would not be run this week because their accounts are frozen. We heard from startups in the middle of venture debt financing that is now defunct. With the dust settling a bit, we can make some better assessments than were possible last week. First, with the US assuring depositors that their capital is secure, we know that any cash-flow / payroll disruption, will be temporary. This is not to say we agree or disagree with this policy decision, its just a practical reality for the moment.

Further, we know SVB is one of the largest players in the venture debt space. This will also cause some short term disruption, but we expect the market to fully fill this demand in the coming months. There is no lack of capital that will chase venture debt returns. Which firms emerge, or which ones grow, is still TBD…but the market will fill the demand. TechCrunch ran an article on the venture debt impact for those more curious on the matter.

As to how this bodes for the broader economy, we dont find it terribly useful to jump into an economic prognostication role at the moment. Certainly this situation highlights the impact of interest rates. There are consequences to QE, inflation, interest rates etc. How that plays out for startups and everyone else is still to be seen. We are more likely in the early innings of this game than we are the later innings. Startups and investors should think in terms of probabilities and not absolutes. How likely is X, Y or Z scenario? This is how all smart investing is played out, even if we don’t always acknowledge it.