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Any implications of the bank run on healthcare?

Transcript

 today, Silicon Valley Bank and its impact on healthcare.

 My name is Bill Russell. I'm a former CIO for our 16 hospital system and creator of this week Health. A set of channels dedicated to keeping health IT staff current and engaged. We want to thank our show sponsors who are investing in developing the next generation of health.

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 All right. Let's just get right to it. Silicon Valley Bank, there's run on the bank last week. As you know, we try not to be a breaking news kind of organization. We don't have the staff or wherewithal to do that, so by the time you're reading this, there's probably a ton more news out about this. I'm recording this on Monday.

I'm gonna go to an article in Fortune Silicon Valley Bank Draw. from a hundred plus venture capital and investing firms after unintended consequences of the bank run. I'll give you my understanding and there's better people to get this information from, but I want to talk about its impact on healthcare.

and specifically healthcare startups for the most part. But, , you know, so my understanding is Silicon Valley Bank probably doesn't have the same risk profile as your traditional bank as a JP Morgan Chase or Bank of America, whatever. It would have a more. , aggressive risk profile than those institutions and essentially they had got grown used to 0% interest rates.

They had invested in long-term bonds. They sold those bonds off, had lost about 1.2 billion to cover the bank run. . , they also tried to do a bank raise sometime around Wednesday that signaled to investors that they were running outta cash or had cash issues, which led some investors to call their startups and say, Hey, if your money's in svb, you might want to get it out of there.

That caused the bank run. F D I C steps in on Friday, closes it down, , seeks buyers for it over the weekend. I don't think, at least at. Time of me recording this, that there was a buyer for this bank. And you might wonder, you know, why an institution like, , JP Morgan, , chase or Bank of America, Wells Fargo wouldn't step in here.

And it is that risk profile. It's a different profile altogether. , there's a couple other banks like this. , this is the largest of those types of regional banks with this kind of. and, , all of them are taking a hit on Wall Street right now with their, , earnings. And, , there's serious concern about, , about this, , the biggest impact.

I'm gonna read some of this story, but the biggest impact is F D I C only covers $250,000 in deposits. Some of these organizations had larger. than that in terms of their deposits and would need to have larger than that in terms of their deposits in order to make payroll. , and payroll becomes the issue because companies don't go out of business because they're losing money.

They go out of business because they run out of cash. And when there's a bank run and you can't get access to your money out of your bank, you , run outta cash very quickly. And so, There needs to be a solution here that, , that restores confidence in the system and restores cash into the system.

Otherwise, we're gonna see a fair number of startups just not be able to make payroll and have to get incredibly creative, more creative than they already have been. All right, let me read some of this article. More than a hundred venture capital and investing firms have signed a statement supporting silicon, , svb.

Instead of saying Silicon Valley Bank, moving forward, I'm just gonna say, svb, part of the mounting industry calls to limit the fallout of the bank. And avoid possible extinction level events for tech companies. As of Saturday afternoon in San Francisco, about 125 venture firms, including Sequoia Capital, had signed on the statement spearheaded by venture firm General Catalyst.

According to a person familiar with the matter, first released Friday by a smaller group of signatories. The statement called the events of the last two days, deeply disappointing and concern. And said the investors would continue relationships with the institution if it were bought by another entity, which it may be.

, I'm not sure who that entity would be, but it might be. Also on Saturday, the startup incubator y Combinator posted a petition signed by hundreds of founders and chief executives to US Treasury Secretary, Janet Yell. And other regulators asking for relief and attention to an immediate critical impact on small business startups and their employees who are depositors at the bank.

The petition asked for small businesses, , that had deposited funds at SVB to be made whole and for congress to restore stronger regulatory oversight and capital requirements for regional banks. , if you're wondering why this is in a slam dunk, it's because there's not a huge appetite for this after the 2000.

, bank meltdown that we saw and the, , and the subsequent, , increase in debt that the federal government had and all these other things. , so that's why it's not a slam dunk. Something will be done. I'm not sure what it's going to be at this point. , it's not going to be unless it's, unless it's a.

It, it's not gonna be, , there's just gonna be a split in terms of the, how people view this. On Friday, a group of investors, four high profile firms, met over Zoom in a series of meetings, according to one person familiar with the discussions, general Catalyst, chief Executive Haymont Tenia posted the resulting statement on Twitter, following the meetings indicating that support of Kleiner Perkins, , Cosla Ventures and others in the hours that.

Followed more than a hundred other firms signed on, including Sequoia. , said one of the people who asked not to be identified cuz of discussions were private. So SVB has been trusted and longtime partner for the venture capital industry and our founders. The statement reads, for 40 years, it has been an important platform that played a pivotal role in serving the startup community and supporting the innovation economy in the us.

And that is truth. , you know, a, a traditional bank is going to shy away from some of the loans that have been made by SVP over the years and some of the companies that it has supported. , and it has really been a foundation for our innovation economy. , the economy's changed, and so, , , you know, the, the foundation for this is, , crumbled very quickly.

And so you, 40 years as a bank is nothing. And for it to crumble this quickly means that either there wasn't enough oversight, it wasn't, , adequately. capitalized as an institution regardless of what it is. I'm not gonna talk about the financial, because there again, there's gonna be better people than myself to talk about these things.

General Catalyst. Tania told Bloomberg that it's important for tech leaders to communicate and agree on consistent approach that we hope can maintain business continuity for our companies. He added, everyone understands that we have a role to play in trying to calm the situation. Tenasia also said that the run on.

Was an unintended consequence of many investors trying to do the right thing for their own companies, and that panic wasn't the way to handle it. He said he wished that investors had guided companies to take three to six months operating capital out of the bank rather than advising them to pull out all of their cash.

, that's, that's very, , it's a wonderful life of him. , you know, it's, , you know, the savings and loan makes it through the day when you have, , Jimmy Stewart's character saying, oh, just take enough. Just take enough. And so that's, that's what we're seeing here. , , at the end of the day. He's probably not wrong.

We may have been able to avoid a panic situation and a run on the bank, but the underlying fundamentals were just broken and they were broken well before this. There's many of articles that you can find out there that talk about how the fundamentals of this institution. , were broken. And that was identified months and months ago.

And, , they were even trying to do a capital raise before this. They sold off their, , their, their long-term bonds at a loss, , to get there. So let's get to why you're probably listening to this cuz no one's listening to me for financials. , they're listening to me about, , healthcare and its. . Okay.

If General Catalyst is talking about this, then, , general Catalyst is a significant backer of healthcare startups, and so healthcare startups are going to be impacted by this, no doubt that they're impacted by this. So one of the things you have to determine almost immediately is, are any of the technologies, , again, I'm speaking to healthcare providers right now, are any of the technologies currently in use in your health system at.

So have any of the startups, , any of those institutions, are they banking at svb? And if they're banking at svb, , do they have enough capital to get through? Are there conversations that need to be happening immediately? There's sort of a triage event that needs to happen before we go on from here.

Determine what's your exposure? What are the, , organizations? The next thing is you have to determine. , , essentially what your next move is, is your next move in support of those organizations and those institutions to call them and, and determine, you know, what can be done in partnership with them to, , to alleviate the immediate pressure that they have.

Understand they likely have payroll. because their money is tied up. Right now, I have not seen any plans to free up this money. They're going to, I just haven't seen it yet. But potentially there's, there's a, a role in partnership that, that you would play in accelerating some payments to them so that they have cash paying your bills on time so that they have cash, so forth and so on.

, so that these institutions can remain viable for the next couple of weeks until this whole thing gets sort. . Okay. So there's, there's that type of thing. There could be a situation where you have to look at it from a patient care standpoint and say, this is a critical technology. We have to make sure that we have a fallback.

To this challenge. And so, , again, it, it's not cold and heartless to look out for your institution at this point and say, we are caring for people and people have a certain expectation of us, and we have to maintain that continuity of care, , for, for our institutions. , what are we gonna do if this technology isn't there?

And what does that look like? I would say longer term and, and I, I mean there's probably some other things, but just, , identify the players that are impacted. See if there's anything you can do to help, , and create your fallback. , the longer term is, I think it's a viable question to ask future startups that you're going to do business with about their banking relationships and understanding their banking relationships and their diversi, the diversification strategy around.

Right. If the F D I C only, , only ensures up to $250,000, , many of 'em have payroll that is. You know, 150 to 200,000 every two weeks or something to that effect. I mean, these are, some of these can be pretty large organizations that you're dealing with. They've scaled up pretty rapidly and, , there, there are some concerns around that.

So it's, it's a fair question to ask about their banking. It's a fair question to ask about their funding. It's a fair question to ask about their cap table and who their investors are. , and understanding, you know, what, what is the foundation for the. Do you feel good about that? Before you're putting this technology into your organization, do you feel like they have the wherewithal to weather a storm like this?

Have they thought it through? , I'm a firm believer in investing in people and even my invest, my personal investments, you're gonna see, I invest in people from all, you're not gonna see, cause I'm not gonna share it with you, but I invest in people. I invest in leaders. I invest in leaders who communicate a strong.

Strategy, , vision for the economy, vision strategy around the economy strategy. , around product strategy, around marketing. I want to hear from the founder, from the leader that they understand what's going on, not only in the product side, the product space. They might understand healthcare, they might understand the technology.

, do they understand the business of healthcare? Do they understand the business of running a business, the entrepreneurial, the scaling aspect of running a business? If they don't understand those things, they're gonna langu. , right. So I invest in leaders who are, , essentially visionaries on all aspects.

On all not visionaries, on all visionaries on the product side and the market side for sure, but also people who are operational or have organizations that understand the operational aspects of maintaining a company. So, , I mean, that's my 2 cents. That's a, that's a quick overview of what's going on.

This is obviously a developing situation. We're gonna learn more over the. Heck, we'll, we'll learn more over the next eight hours, but I would, , I'd take stock right now. I would look at the institutions you're doing business with. , if you haven't received a note from their founder at this point, if you're a CIO and haven't received a note from their founder saying, Hey, we have not been impacted by the SVP Bank run, or, Hey, we have been impacted.

If they have or have not, you should have been. , that's a, that, that will indicate something to me of the leadership style of the organization that you're doing business with. But again, take stock, send out all you have to do, send out a couple emails, make a couple phone calls, , and determine what your exposure is as an organization, and then make plans either to support them or to, , mitigate the risk that might exist for your institution.

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