Despite being exposed to the tune of $8-10 million in the collapse of Silicon Valley Bank, Mark Cuban considers himself relatively lucky.
Speaking on Twitter Spaces this weekend, Cuban laid bare what he believes the priorities should be for impacted parties: supporting start-ups to sign off their payroll and invoices to vendors, so their creditors in turn can continue to operate.
Minimizing layoffs at companies directly or indirectly linked to SVB is so key that Cuban has begun signing cheques himself to ensure the bills get paid, saying he refuses to see the failure of his babyaffordable medication platform CostPlusDrugs.com.
The move comes after investors and depositors tried to withdraw $42 billion from tech stalwart Silicon Valley Bank, according to a California regulatory filing at the end of last week. Since then the U.S. Federal Reserve has said it would ensure that depositors at Silicon Valley Bank and Signature Bankwhich also failed over the weekendwere protected in full, even beyond the $250,000 normally covered under federal deposit insurance.
Speaking to Twitter Space host Mario Nawfal, Cuban said the much-feared domino effect will depend on the percentage of uninsured deposit returned to investors. If its between 50% and 60%, he said, the market will have some confidence in the system. If its less than 10% then questions will begin to be asked, and if nobody gets anything then theres a risk of a huge contagion, he warned.
The Shark Tank investor said in that scenario: Payrolls arent made, vendors arent paid and those vendors cant pay their payroll, so theres a second, third and fourth order.
If theres no money paid out in advanced dividends then we have a problem. If theres a material amount that covers enough of the start-ups and the wine industry for the companies impacted to pay their bills and make their payroll, then six months from now we wont remember the details.
He added if customers get a 50% return by Wednesday, then the next question is how communication over the remaining 50% will be handled: If its all uncertainty and we dont know any type of timeline and theres no ongoing communication thatll create a small contagion, but still a contagion.
In response to how hes keeping his impacted firms going, is answer was simple: Im writing checks.
He added: Im only exposed to maybe $8 million to $10 million dollars so Im fortunate. But CostPlusDrugs.com deals with SVB. We had I think $3.1 million there so were scrambling and opening up accounts and staying up late talking to banks to get accounts opened up. Im writing checks on Monday morning first thing to make sure that payroll and payables are covered. CostPlusDrugs.com is my baby right nowIm not letting it go anywhereand so Im playing offense in every way I know how.
Nobody could have predicted this
Despite claims that VCs and bosses at SVB should have seen the run coming, Cuban insists the scale and swiftness of the banks collapse couldnt have been predicted.
He added founders would have been unlikely to rank a bank run at anywhere above zero, continuing: I cant say you can blame anybody. Even SVB when theyre assigning probability to bank runs and high profile VCs telling all their companies to yank money from SVB, nowhere do you assign a probability that $42 billion is taken out within eight to 10 hours or whatever it was. This really is a confluence of events that nobody would have predicted.
He added, I do think its going to be interesting when we find out if any of the VCs that were actively telling people to withdraw their funding were also shorting at the same time, and what the legal ramifications are.
Its too late to minimize the fallout for companies indirectly linked to SVB, Cuban said. These are the types of situations where you hope the government comes in, he added. I dont call it a bailout and some people gave me a hard time for that, simply because I think theres good assets and if youre buying good assets and that solves a liquidity problem thats not a bailout. Thats taking care of the liquidity side of the problem and your risk is the interest rate delta.
Could more runs be on the way?
Signature Bankwhich also operates in the tech industrysaw a similar rush over the weekend before being taken over by regulators. That others will follow is a possibility said Cuban, though the ramifications may not be felt to the same extent.
Other bank runs are a possibility, he said. Any of the low-insured deposit percentage banksif the FDIC doesnt communicate well on their advanced dividends and what the payouts and returns are going to be for the deposits, then all those other banks are at risk. I dont think they have the concentration to generate a true bank run.
Such chaos could present opportunities for those willing to pick through the scraps, he added. Drawing from comparisons with Amazon and Dell in 2000 and LiveNation in March 2020, Cuban said it was an opportunity to invest in good companies. Such options will only be available to a select few he added, as details of SVBs other businesses came to light this week.
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