Thread by Lulu Cheng Meservey
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- Mar 10, 2023
- #Finance #CentralBank
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It’s tragic that Silicon Valley Bank could lose 80%+ of its value in a single day.
But what’s crazy is that the financial collapse was largely driven by a communication collapse.
Their storyline unraveled and their messaging went off the rails, in 4 big ways.
(continued below)
But what’s crazy is that the financial collapse was largely driven by a communication collapse.
Their storyline unraveled and their messaging went off the rails, in 4 big ways.
(continued below)
(These are incomplete observations, made with humility and empathy for the good people at SVB doing their best in the fog of war.)
So what seems to have happened:
SVB took a hit to their balance sheet, like many others have, and they decided to raise some money…
So what seems to have happened:
SVB took a hit to their balance sheet, like many others have, and they decided to raise some money…
SVB made the responsible decision to strengthen its financial position with a cap raise.
It made sense.
Where things went terribly wrong was the communication, specifically:
(1) WHAT they said, (2) WHO the audience was, (3) WHEN they did it, and (4) HOW they framed it.
It made sense.
Where things went terribly wrong was the communication, specifically:
(1) WHAT they said, (2) WHO the audience was, (3) WHEN they did it, and (4) HOW they framed it.
1) WHAT they said
SVB issued a press release on March 8: “SVB Financial Group Announces Proposed Offerings of Common Stock and Mandatory Convertible Preferred Stock.”
It had a lot of dense detail on the financial instruments and underwriters used. But it had a huge omission.
SVB issued a press release on March 8: “SVB Financial Group Announces Proposed Offerings of Common Stock and Mandatory Convertible Preferred Stock.”
It had a lot of dense detail on the financial instruments and underwriters used. But it had a huge omission.
The SVB press release made no mention of their reasons for the raise, any further context, or any reassurance about the strength of the business otherwise.
It was all numbers, no narrative.
SVB also filed a form 8-K with the SEC, to disclose a significant event to investors…
It was all numbers, no narrative.
SVB also filed a form 8-K with the SEC, to disclose a significant event to investors…
Their 8-K was pretty good! It did include a clear description of the company’s liquidity strategy, rationale for fundraising, and strong capital position.
But the problem is that the 8-K didn’t get through to a lot of their customers (startups) and influencers (VCs).
But the problem is that the 8-K didn’t get through to a lot of their customers (startups) and influencers (VCs).
SVB dropped their biggest, most intricate, most unnerving news of the year — without any meaningful reassurance to their core customers (startup founders, especially early stage) and the people they listen to the most (influential VCs).
That became the second comms failure…
That became the second comms failure…
2) WHO the audience was:
SVB seems to have prioritized protecting the stock price. An 8-K and press release speak to regulators, analysts, and banks.
But they missed a key audience: customers.
A stock drop is painful, but it’s nothing compared to not having customers.
SVB seems to have prioritized protecting the stock price. An 8-K and press release speak to regulators, analysts, and banks.
But they missed a key audience: customers.
A stock drop is painful, but it’s nothing compared to not having customers.
SVB’s core customer is tech startups. They don’t get their news from press releases or the SEC!
Startup founders are not digging through EDGAR.
They’re around digital water coolers. They get scuttlebutt from group chats, Twitter, HN, Reddit, tech pubs, direct channels, and VCs.
Startup founders are not digging through EDGAR.
They’re around digital water coolers. They get scuttlebutt from group chats, Twitter, HN, Reddit, tech pubs, direct channels, and VCs.
3) WHEN they did it:
Timing might have been SVB’s undoing. They dropped the news on Wednesday evening, right on the heels of the Silvergate collapse, and thus lumped the two together.
When analyzing complex situations, people (and banks!) look for proxies and comparables.
Timing might have been SVB’s undoing. They dropped the news on Wednesday evening, right on the heels of the Silvergate collapse, and thus lumped the two together.
When analyzing complex situations, people (and banks!) look for proxies and comparables.
By announcing Wednesday, SVB gave itself the worst possible comp with Silvergate.
Note: the SEC does require public companies to publicly disclose a significant event within 4 days of the event happening.
So maybe SVB was at the end of its 4-day window and had no choice…
Note: the SEC does require public companies to publicly disclose a significant event within 4 days of the event happening.
So maybe SVB was at the end of its 4-day window and had no choice…
The last comms collapse is
4) HOW they framed it:
As I said above, SVB initially gave hardly any framing at all. The press release was all numbers, no narrative.
SVB then stayed quiet as worries rose overnight. News is 24/7 now — there’s no reason to wait until business hours.
4) HOW they framed it:
As I said above, SVB initially gave hardly any framing at all. The press release was all numbers, no narrative.
SVB then stayed quiet as worries rose overnight. News is 24/7 now — there’s no reason to wait until business hours.
Almost a full day later, SVB’s CEO told customers to “stay calm.”
You know how the best way to take people from annoyed to furious is to tell them to calm down?
There’s also no better way to take people from worried to panicked.
You know how the best way to take people from annoyed to furious is to tell them to calm down?
There’s also no better way to take people from worried to panicked.
If the “stay calm” messaging wasn’t enough invitation to panic, SVB added on the suggestion that “everyone is telling each other SVB is in trouble.”
If you want to get people to do something, offer social proof: “everyone else is doing it.” This was social proof for fleeing SVB.
If you want to get people to do something, offer social proof: “everyone else is doing it.” This was social proof for fleeing SVB.
SVB was in weakened but fundamentally stable condition.
Then they dropped big news that was likely to cause fear and confusion — with little context, terrible timing, delayed outreach to customers and influencers, and panic-inducing messaging that foreshadowed a bank run.
Then they dropped big news that was likely to cause fear and confusion — with little context, terrible timing, delayed outreach to customers and influencers, and panic-inducing messaging that foreshadowed a bank run.
Comms can make or break companies, though usually not this fast.
I like and respect the SVB team and hope they can recover.
This collapse over the past day was a useful reminder for me about how high the stakes are for comms and messaging, and I hope it’s useful for others too.
I like and respect the SVB team and hope they can recover.
This collapse over the past day was a useful reminder for me about how high the stakes are for comms and messaging, and I hope it’s useful for others too.
Can good comms save an otherwise bad situation? No, there's no amount of "going direct" that can make up for a bank not having enough money.
But bad comms can kill an otherwise salvageable situation.
But bad comms can kill an otherwise salvageable situation.
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Alyse Killeen @AlyseKilleen
·
Mar 10, 2023
Great thread re: yesterday's run on SVB. Comms very clearly didn't consider the customer audience (or perhaps didn't understand where customers were at wrt risk appetite and ops stability). That miscommunication appeared in the CEO's most recent conference appearance as well.