Lessons learned from the Silicon Valley Bank collapse - with Todd Gardner, SaaS Advisors

**Ray Rike** (0:00)
Hello, I'm Ray Reich, founder and CEO of RevOp Squared, and your host of the Metrics that Measure Up podcast. We talked to a wide variety of B2B, SaaS and Cloud thought leaders, executives, investors, and people just like you to discuss the metrics and benchmarks they use to make metrics and form decisions. Now on to today's show. welcome to today's special edition of the Metrics It Measure Up podcast. Today, we are joined by Todd Gardner, who was the founder and former CEO of SaaS Capital, and now the founder of SaaS Advisors. Today, we'll be covering three main topics, all centered around the Silicon Valley Bank collapse with Todd, and those include the details behind the Silicon Valley Bank insolvency. Second, what did we learn about the financial infrastructure behind the majority of the B2B technology startup ecosystem? And third, lessons learned that SaaS B2B founders, CEOs, and CFOs can take to the bank. A little play on words there. Todd, can you take a moment to give an overview of your background and why it is so germane to this topic of financing and financial stability in the SaaS industry?

**Todd Gardner** (1:30)
Sure. Thanks, Ray. Thanks for having me. Yeah, brings back memories for sure. So I was actually a banker, my very first job out of college. I was a commercial lender. I did some consulting and then I went into venture. And then I launched SaaS Capital in 2006, 2007, right ahead of the financial crisis. And so lived through the meltdown of my banking partners and saw sort of first-hand how fragile the financial system can be. And I'll circle back to that in a little bit when I talk about kind of the current state of kind of the SaaS debt financing market post SBB. But yeah, this brings back some memories, not always some great memories. And I would say lately too, I've just been talking with a ton of VCs, SaaS companies themselves, other lenders, folks at SBB to get just a little bit closer up perspective of what's going on. And then more importantly, sort of where do we go from here?

**Ray Rike** (2:36)
So Todd, I expect a lot of first time listeners to the Metrics Major podcast because of this special episode. So do you mind spinning in just another minute on what SaaS capital is and why it's so relevant to what we're going to be talking about for the next 30 to 45 minutes?

**Todd Gardner** (2:53)
Yeah. So SaaS capital was a specialty or is a specialty lender still around. I sold my position three years ago, but we were the first dedicated lender into the SaaS marketplace. So SaaS capital has lent over 100 SaaS companies in the US., UK, Canada, and we're not a bank, but obviously all of our portfolio companies had banks.
So we worked with all the tech banks on a very regular basis because we needed to coordinate with them, account control agreements and things like that. So, and then lately I've actually been doing a fair amount of research and study on the general SaaS lending landscape, which includes SaaS capital, a bunch of new entrants, and then obviously all the tech-oriented banks including SVB. And again, we'll circle back to that a little bit later around what will be the impact of SVB exiting the market, obviously not only as a holder of deposits, but as a provider of capital into the tech space.

**Ray Rike** (4:00)
Great. Well, thank you for the background. So let's take a step back and provide a good foundation for what's transpired over the last five days that led to the collapse of Silicon Valley Bank. So could you just kind of set up what's happened to get us to where we're at today?

**Todd Gardner** (4:18)
Sure. It's funny, banks are very different from operating companies that we're all used to. Deposits are actually liabilities, so the balance sheet's a little screwy. And so let me just walk through it, hopefully in a way that makes it a little bit more clear. So as we know, the venture market's really taken off in 18, 19, 20, and 21, and all those venture dollars found their way into tech companies, and half those tech companies deposited that money at Silicon Valley Bank. So the bank's deposits actually doubled over the last two or three years, and that's great and a good way to grow the bank, but they needed to do something with that money, right? That's how they make money. They get money in from depositors, and then either they loan it out, or they invest it, and they lend out as much as they can, but the deposits came in so fast, they put some of their money into bonds, and some of that money actually into very long-term bonds, because they gave higher yields, right? So they're paying nothing on deposits, they're getting maybe a percent or two on the long-term bonds. It's not a great business model in that environment, but it works out okay. Then two things happen. One is we know all tech lending really stopped. The tech market crashed, and so new dollars stopped flowing into those companies. So as all those startups were burning money, their deposits were going down, and interest rates were going up. And so the interest rates going up to two things to them. One, it increased the outflow of deposits, because people could now find better rates other places. So instead of having their money stuck in a Silicon Valley bank account, they moved it to maybe a money market account at Vanguard. So that exacerbated the outflow of cash as deposits went down. It also made their bonds worth less money, and they were very long-term bonds. So as interest rate goes up, the value of those bonds goes down.