Techstars CEO Maëlle Gavet and SingleStore CEO Raj Verma join Yahoo Finance Live to discuss how their companies and partners were impacted by the SVB fallout, tech startup investments, and the outlook for VC culture amid the U.S. banking crisis.

Video Transcript

JULIE HYMAN: Let's turn back to the situation with Silicon Valley Bank because the sudden failure of the bank was a wake up call for startup tech companies, exposing pitfalls in the financing arena. Here to examine the impact on the relationship between the tech and banking industry and the effect on Silicon Valley culture is SingleStore CEO Raj Verma along with Techstars CEO Maelle Gavet. And just to explain to folks, SingleStore, a database company, a startup company.

Well, at one point it was a startup company, a little more mature now. Techstars does seed funding, just to give a little bit of context for folks. And Raj, I want to start with you. You actually put an ad in the Wall Street Journal sort of, I guess, touting the idea of Silicon Valley as one that has value still, right? And that says that it's gotten a lot of flak. So there is this disconnect, seemingly, right now between how people are viewing Silicon Valley and how it views itself. Maybe that's not new, but what kind of message do you want to put out there about that?

RAJ VERMA: As I said-- by the way, it's a pleasure to be here. It's sort of early in the morning. We were just hit by a storm, so I've been out of electricity for three days. Of course, the Valley needed all of that with what was going on. Last week was not a very pleasurable week. Everything had happened so fast. A lot of us, actually, almost all of us, were very surprised at the speed at which things happened.

And naturally, I don't blame anyone when there is a dark cloud over the Valley and the tech industry. However, for us entrepreneurs and founders and all the rest of it, we were going about doing our job the way we were supposed to, and we were just completely blindsided. Now, the fact really is that SVB as a brand was a creative partner to us right through and ultimately ended up in a really good place.

And I just wanted to show gratitude towards what the Valley's afforded me and my family and my colleagues. I doubt if there is a place in the world that would have given an immigrant like me and a lot of immigrants who are my colleagues and friends the chances that this Valley has afforded us. It is a wonderful, wonderful place where innovation thrives, and I do think that the best days of the Valley are ahead of us.

BRAD SMITH: And so we certainly do hope that those best days are still ahead of us. Even with that in mind, Maelle, I wonder, for so many of the stories like Raj's where you've got radical impacts to how businesses can see themselves through the next week and the next month and so forth and are just continuing to look for answers here, how much of your portfolio and the clients that you have as well are impacted by this?

MAELLE GAVET: Thank you first for having me on today. This is a very pivotal moment in our lifetime for the future of the global technology ecosystem and startups. So to answer your question directly, we have 3,500 companies in our portfolio. They are from all around the world. We invested in companies like ClassPass, Chainalysis, SendGrid, and we work with a little over 24,000 investors who have at one point or another invested in Techstars Portfolio Company.

So we're definitely plugged into the ecosystem. It is very clear that Silicon Valley Bank challenge that happened over the weekend impacted a lot of the startups in the tech ecosystem, and it's primarily due to the fact that, number one, was the boom in tech startup investment and the growth at all costs mentality. We created a world where unprofitable startups needed to constantly fundraise and required continuous lines of credit.

Number two, SVB was basically the only one to support tech startups with the required lines of credit. And then on top of that, things got worse because of the herd mentality and the fear of missing out, which is very prevalent among VCs. And so you combine all of that, and the majority of startups around the United States, the numbers are a little over 50%, were in one way or another impacted by what happened with SVB last weekend.

JULIE HYMAN: It feels like-- and you in a LinkedIn post offered some helpful advice to some of those startups, Maelle. But you also-- as you also just mentioned, VCs are a big part of this culture. And Raj, I want to take this to you, and I actually want to read something that Elizabeth Spears wrote in the New York Times in an opinion piece when she looks at this. And she was somebody who banked with SVB as well.

She says, "The venture capitalist chose a path that would be disastrous for their industry--" talking about the reaction to SVB-- "freezing up capital, spooking investors, and reducing the favored financial institution to rubble. Then they had the temerity to go on social media and congratulate one another for their quick thinking." Raj is VC culture-- you talked about all the good things about the Valley.

Not everything is good about the Valley, right? Is VC culture a big problem now going forward? Does this expose some of the downsides that go with it?

RAJ VERMA: Yeah, I think there is some truth in the fact that some of the friends led to the demise of SVB. There's just no if, and, and buts about it. If you had wanted to engineer a bank run, you couldn't have done it better than what transpired last weekend. Look, I mean VCs is-- there are hundreds and thousands of VCs in the Valley. Most of them that I meet are extremely cerebral, extremely trustworthy, and really, really good individuals.

And I do think that they did-- some of them did spook the companies and led to the bank run where, what was it, $42 billion got taken out of the bank on Thursday. And I think there were pending buyers for $36 billion. Now, the fact of the matter is no bank could ever survive that. So I do think there is a lesson to be learned. However, we do have to realize that it's the same VC community that's probably created the greatest wealth in the 50-mile area between San Jose and San Francisco than any other place in the world.

JULIE HYMAN: But at what cost, Raj? I mean, those are the VCs, it seems to be, with the most power. And I want-- Maelle, maybe I'll take this to you if I can. Does the balance of power in the VC community need to change? I mean, there's also been a lot of criticism of VCs for funneling cash into the same old folks, and thankfully, you two are exceptions, but into white, Ivy League educated startups, for example.

MAELLE GAVET: Yes, so as I was mentioning earlier, there is a fundamental issue with the way a VC generally operates. Many VC, not all of them-- I would want to start by saying there are some exceptional VCs out there who do a tremendous job to help startups and the tech ecosystem globally. But many VC hunt as a pack. They are terrified of missing out on the next big things. And as a result, they funnel money to startup which would likely never be profitable. And they perpetuate, as we discussed earlier, they perpetuate the need to constantly fundraise because they need to justify their investment by ever-growing valuation.

What is likely going to happen as a result of the last six to nine months with the valuation going down and what happened over the weekend with SVB is that the VC ecosystem is actually most likely going to change. Change in terms of the type of company they're going to go after, change in terms of consolidation of the VC themselves. We expect at Techstars that between 30% and 50% of the VC that exist right now are going to become what we call zombie VC, which is VC who are still managing their previous fund but are not raising new funds. And so we expect to see a lot of changes and hopefully for the good.

BRAD SMITH: The broader market environment, though, economically in how VCs are managing the capital that they do deploy to some of these startups, that pendulum had already started to change because of their own kind of scrutinous cost management in this near term period of time. So how much more does the collapse of Silvergate, the broader banking issues that have become known over the past couple of days and weeks, how much more does that continue to move that pendulum back towards just companies that have a solid pathway to profitability?

And how do we ensure that some of the new investments that these VCs have made into more diverse startups, whether that be in the entrepreneurs and the CEOs, the people leading that or the types of businesses, how do we make sure that doesn't get left by the wayside?

MAELLE GAVET: I think to start with, we need to accept the fact that winter is here for tech ecosystem. And the reality is that it's going to be a long, cold winter for many companies, and we're going to see a lot of startup fail. We're going to see VC undergo a massive consolidation. We should expect higher regulatory scrutiny and Silicon Valley to be under a microscope more than ever.

And we should expect founders to have to relearn what it means to build a financially sustainable business. Having said that, I also think that it's not all doom and gloom. There are some bright spots ahead if you look at investing in early stage. This is a stage that has historically been very reasonably priced, and it continues to be so. There are, as we speak, incredible companies right now which are creating solutions that we so desperately need to solve society's biggest problem, whether it's health tech, climate tech, food tech, fintech.

And there are a lot of really safe and stable companies that have crucial infrastructure for their industry, like Chainalysis that I mentioned earlier. And so-- and there is money. The VC-- the big VC have raised multibillion dollar funds. Big capital allocator institutions have now created a VC box for their investment.

So there is money. There is amazing entrepreneurs. There are big problem that they're working on. And so I would want people to have a positive view, nevertheless on what's going on.

JULIE HYMAN: And I want to bring it back to that for you, too, Raj, because that's kind of where we started with this, again, ad that you put in a Journal where you talked about Silicon Valley as an idea and an ideal, if you will. So where do you think we go from here? Do you think sort of a new class of leaders emerges here to push startup culture and the tech industry to the next phase?

RAJ VERMA: Yeah, I do think that there is a learning from all of this, Julie. For sure, there is absolutely no doubt about that. I do think that I'm a lot more optimistic about the Valley than probably another person. I do feel that there was a lot of exuberance, I must confess, in 2021 where there were a lot of valuations which weren't justified. I do think that founders and entrepreneurs focusing on the fundamentals of business, which really haven't changed, essentially. You spend less than you sell, and everything else is going to be fine.

From our perspective, just a shout out for the VCs that we partnered with, we've always gotten a lot of encouragement from them to manage our cash flow. In fact, one of the reasons why we had a reasonable weekend compared to some of the others were we were one of the companies that was actually talking about Treasury management seven months ago after we had raised a big pile of money. And we also had multiple bank accounts.

So just fiduciary duties of keeping your capital safe, which is something that a lot of the founders and the entrepreneurs in the Valley did not do. So, yes, I think what doesn't kill you makes you better. So we do feel that there would be stronger companies emerging at the back of that. I do think there will be a greater governance, especially around cash management, in companies that will happen as a consequence. And I do think that innovation will continue to thrive here.

JULIE HYMAN: Balance sheet management, spending less than you sell. It shouldn't be so unique a concept, Raj. Thanks so much for being here. Raj Verma, SingleStore CEO, and Maelle Gavet, CEO of Techstars, thank you both so much for this conversation. Really interesting one.