Postmortems about Silicon Valley Bank (SVB) have poured in since the FDIC took the bank into receivership last Friday morning. SVB’s situation was so dire by Thursday night, nearly $1 billion negative cash position and $42 billion of pending deposit withdrawals, the FDIC did not wait until the end of business Friday as it usually does.

Finger pointing and opinionating (a word a client of mine coined) have come fast and furious from knowledgeable and ignorant people alike. Investors dumped shares of “regional” banks like Key Bank, Comerica and Huntington with no more reason to do so than commentators having tagged them like SVB as “regional” banks. When the FDIC closed SVB, Garry Tan, the head of fabled tech company accelerator Y Combinator immediately declared it “an extinction level event.”

At the root of SVB’s problems was its dramatic intake of deposits during the Covid crisis. Flush with cash, investors flooded venture capital funds, the funds flooded startup companies with new investment money, and the startup companies flooded SVB with bank deposits. The bank’s balance sheet nearly doubled in size during 2021, cresting $200 billion and making SBV the nation’s 16th largest bank by assets. Typically, bank balance sheets grow at the same rate as the national economy, 3-5% a year.

SVB bought government and corporate bonds with the influx of deposits, standard practice in the banking business. Those bonds lost value though as the Fed repeatedly raised its benchmark interest rate. SVB’s failure to either reduce the size of its investment portfolio or buy hedging contracts that would compensate it for diminished value of the portfolio as rates rose was its big mistake. The bank’s management was overconfident in the tech economy and thought the $21 billion of bonds it held in its “available for sale” portfolio was a sufficient liquidity cushion should depositors want their money back.

In the barnyard parable of Chicken Little, the dimwitted chicken says the sky is falling when an acorn drops on her head. Other animals take her statement at face value and panic. Eventually the fox eats them all.

Here, the bank announced March 8 it sold its AFS investment portfolio at a loss of $1.7 billion. The bank’s CEO on a conference call acknowledged the bank would need to raise additional capital. He said the bank would survive as long as depositors did not create a bank run. Which big money depositors like Peter Thiel promptly did. They internalized Chicken Little’s message and acted on it. They failed to recognize that a pea-brained chicken could misinterpret the meaning of an acorn falling on her head. They, as larger, smarter animals could withstand an acorn’s falling on their head and should not panic. As a Midwest tech venture investor said to me, “where else but at SVB can a company with $5 million get a credit facility for $10 million?” That is the fox now stalking tech startup companies.

Federal officials’ decision to protect SVB depositors for all amounts on deposit is a necessary expedient. It does not answer the Midwest venture investor’s question. Doing that will require the venture capital community to construct a replacement for SVB that can meet the banking needs of tech startup companies.

SBV’s failure will not trigger a replay of 2008’s global financial crisis. It does, however, bear a resemblance to that calamity in one way. After the roof fell in on subprime asset-backed bonds, making investors in Steve Eisman’s FrontPoint fund instant billionaires, FrontPoint employees Danny Moses, Porter Collins, and Vincent Daniel sat on the steps of St. Patrick’s Cathedral and regarded the civilized world for what they felt sure would be the last time. They were wildly rich, but feared there would be no place left where they could invest their lucre.

That’s the cliff over which startup tech companies were launched last Thursday by Peter Thiel and his kind. We can only hope they have been sufficiently chastened to change their behavior by thinking of the community’s interest as well as their own.