March 13, 2023

[EMERGENCY POD] Silicon Valley Bank: What Happened and Why

[EMERGENCY POD] Silicon Valley Bank: What Happened and Why

(Recorded 03/10/23) Alex Lieberman (@businessbarista) and Jesse Pujji (@jspujji) react and unpack the news about Silicon Valley Bank and its collapse. Jesse goes into where banks fit in the entire financial ecosystem and how they relate to startups. Then, they go into some of the early lessons learned that could apply to business leaders. 


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Alex Lieberman: What's up, everyone? This is Alex. Quick note about this episode before we hop into it. My co-host, Jesse, and I recorded an emergency episode about the Silicon Valley Bank situation on Friday, March 10. When we recorded the episode, SVB had collapsed. Its stock plummeted. There was a run on the bank by its depositors, and the FDIC had taken over. There wasn't yet clarity on what would happen to customers' deposits above the $250,000 limit that was insured by the FDIC, and there wasn't yet a buyer of SVB. Since recording the episode, other important pieces of the puzzle have occurred. First, the Biden administration announced that all customers of SVB will have full access to their deposits as of Monday, March 13. Second, Signature Bank, a New York-based bank with $110 billion in assets and $89 billion in deposits was closed. The FDIC was appointed receiver of the bank and all depositors were protected in the same way as Silicon Valley Bank.

Now, while the facts around the story have changed, I still think you will find this episode of The Crazy Ones to be really instructive. Jesse is an expert in how banks work and how this situation unfolded, so you will gain a deep understanding of the banking system, what causes runs on banks, and what caused the 16th largest bank in the country to collapse. Now on to the episode.

What's up, everyone? I'm Alex Lieberman.

Jesse Pujji: Yo, this is Jesse Pujji.

Alex Lieberman: And this is The Crazy Ones.

What's up, everyone? Welcome back to another episode of The Crazy Ones. This is not normal programming. I want to say it was midday yesterday, so we're recording on Friday, March 10, and it was midday yesterday when I just started seeing all of my founder and post-exit founder groups blowing up. The only thing that was being talked about was Silicon Valley Bank. Were you seeing the same thing, Jesse?

Jesse Pujji: Yeah. Yeah. It's been a crazy 24, 36 hours.

Alex Lieberman: You know, this is one of those stories where we'd be remiss not to talk about what's happening with Silicon Valley Bank, how banks even work, how did things get to this point, what a run on a bank means, and how founders should be thinking about navigating not just this situation, but situations like this moving forward. With that, we're going to have a short discussion about the whole Silicon Valley Bank situation, and if you have any questions for us, shoot us an email at Let's do this thing.

Jesse Pujji: I'll start. Let me start by saying actually one thing, which is, I never want to see a business fail. Silicon Valley Bank was a partner of mine for over 10 years, and the people there are awesome, and they supported Ampush during tough times, and I think a lot of companies and a lot of businesses. It's really sad because it's a wonderful organization.

Alex Lieberman: They've been around for a while, right?

Jesse Pujji: 40 years. Yeah. So I think, I was just like, I'd say I'm feeling for all the people who worked with me and supported me there. Greg Becker, the CEO, all the way on down. I have some former employees who work there. And I think, I assume right now we'll talk about our relative exposures to this, but there are people who are going to be in real big trouble because of this. Founders, and I'm just feeling for all you guys right now and pulling for you to grind through it, because it's going to be a rough time.

Alex Lieberman: Yeah, I definitely think it's a good thing to point out. Because it's very easy for people to talk about this situation, but for the people who are actually experiencing it, it's horrible. It's also, I feel like you and I spend a lot of time on Twitter, and normally I'm fully about the Twitter meme culture and people just making jokes about Silicon Valley and startups in general, but I think this is one of those topics where joking doesn''s like a time and place for everything, and this isn't the time.

Jesse Pujji: Yeah. And I mean, there's real times with us, where if Silicon Valley Bank had thrown the book at us, Ampush would've never made it, we'd be out of business. They gave us grace and they were helpful to us. I mean, it's just, it sucks. It sucks that this is what happened.

Alex Lieberman: It's wild. So I want to step back, because obviously I've read up on the story, but I feel like you're intimately familiar with everything that's gone on. I guess before we talk about what got Silicon Valley Bank in this position that caused the run on the bank that has people wondering, are they going to be able to make payroll for their businesses? Can you just break down how is it that any bank, not just Silicon Valley Bank, works, and how does a bank in general get into the spot that they got in?

Jesse Pujji: Yeah, I think that's a great place to start. Banks are incredibly unique and complex businesses, and they're actually really important for any kind of capitalistic society to operate. Because I like to think of it as, they grease the gears of capitalism, because without them, money wouldn't be able to sit somewhere, then it wouldn't be able to get put out somewhere, but they're actually pretty confusing businesses to understand, in how they make money and what they do. So let's talk about a bank. We go make a deposit, whether you're an individual or a business, you put a thousand dollars into a bank account. That's your asset. We literally, in common culture, say "money in the bank." That's my asset. It's actually the bank's liability. One of the weird things about a bank is its balance sheet is flip-flopped from a normal business's balance sheet or a normal person's balance sheet.

That's a liability, which means that's money they owe you. They have to pay you out at some point. Well, yeah, they can charge you fees and ATM stuff, that doesn't make them the real money. What then they do with that money is, they have to hold back a certain portion of it for reserves, which, by the way, they didn't have to a hundred years ago, and then the Great Depression happened. But they have to hold back, say, 20% of it, and then they go and they lend that money out to someone for some reason. The classic example is sort of like, they go give it to a person who wants to get a mortgage to buy a nice house. Say they go and offer you, I'm making numbers up, 1% for your deposit. For a checking account, by the way, they offer zero, and they have a higher reserve requirement. For a savings account, they may offer a little bit, and then they lend it out at 5%.

On my thousand-dollar example, in a year, the revenue of the bank would be...a thousand dollars...5% of that is 50 bucks. Their cost would be 10 bucks plus whatever overhead and admin. They make this thing called a net interest margin. That's the way that they actually make money, is they borrow from depositors and they lend to various things and various people.

Now, Silicon Valley Bank, most of their cash was coming from startups or VCs, right? That's literally the name of their bank. So they would get all their cash from those people, and then they would lend out to, you know, they lent to Ampush when we did an acquisition; they helped finance it. They gave us $5 million, we paid them, I forget the rate, 5% plus whatever. And there again, they're making that spread. That's how banks make money.

Now, the reserve obviously holds back. There's one other thing that's important to realize, which is in an ecosystem of banks, if you then put money, you lend me money to buy my house with, or you lend me money to buy a company with, the person who gets that money then takes that money and then they put it in their bank account. Well, then that bank does the same thing. There's this really unique money multiplier thing that starts to happen, where there's a lot more sort of like deposits on deposit technically than exists cash in the world at any given time. That's like when people talk about a bank being levered, that's what they're talking about. They're talking about the amount of cash in deposits they have versus what's going out.

Now, Silicon Valley Bank took money from VCs, usually that was funding their startups, just held that bank. They're actually a very conservative bank traditionally. And then they went out and lent it out to startups and did other business. Now, they had to go, and it's kind of a funny...not funny, but it's an unfortunate sequence of events with PPP, because we actually got our PPP money from Silicon Valley Bank, Ampush did. The government goes and says, "Hey, I'm going to go put trillions of dollars into the economy." Silicon Valley Bank's deposits went from something like $60 billion to $200 billion in less than two years.

Alex Lieberman: Yeah. $190 billion from 2019 to 2022.

Jesse Pujji: That's how much it went up by.

Alex Lieberman: Yeah. It went from $60b to $190b.

Jesse Pujji: $190b, yeah, so 3x, okay.

Alex Lieberman: Yeah.

Jesse Pujji: That's cool for them as a bank, but now think about, you're in the business of, I have all this cash and I gotta go lend it out. Well, there weren't that many startups borrowing money and there weren't like...and so, in their position, what would you do? You probably did it in that timeframe, the 2021, 2022 timeframe. You said, "Let me just buy some safe, theoretically safe, long-dated mortgages, long-dated government-backed bonds. Those are good deals. I'll hold them till they mature. I gotta put my assets somewhere because I have all these assets that I didn't have before. All these deposits that came in."

Alex Lieberman: Yeah, they're just like, "I want safe yield." They're like, "I just want safe yield so I can make my margin."

Jesse Pujji: I want safe, cheap yield. I don't want to have to think about it. I got all this kind of free money from PPP. Also there's a whole 'nother funny conversation around, the government gave all these people money and then they turned around and lent money back to the government, which we will save for another day. They did that, but back then the interest rates were 1%, 2%. Now, as we all know, interest rates are 4% or 5%. Now, all of a sudden, they had this issue where they were lending money, they had lent money out at 1% or 2% and all of a sudden the cost of money has gone above that; it's gone to like 4%. In finance, if the interest rate goes up, the value goes down. You probably remember that from your trading, your nine months of trading. Right?

Alex Lieberman: Yup. Exactly.

Jesse Pujji: And so technically what happens is all of those things that they bought were worth far less. They just went down in value. Now, they could have just held them to maturity, but the other issue that starts to occur when you have that much in long-dated stuff is you're in a rock and a hard place. Think of it as owning your home for 30 years. You have two choices. You can either sell your home and get the money today, but you're going to sell your house at a loss. That's the same thing as owning the mortgage. You're going to either own that mortgage and sell it at a loss, or you can hold onto it, but you don't have any money. You just own the physical house. What do you do if you need cash? And banks need cash because they have to facilitate...

Alex Lieberman: And by the way, to that point, we don't have to go into this whole thing of duration risk, but basically there's this huge risk of the Fed. There's a plan for the Fed to keep raising rates, so the book value of these mortgages is only expected to get lower and lower.

Jesse Pujji: Worse.

Alex Lieberman: Yeah, so the question is, how much of that risk are they willing to take on?

Jesse Pujji: Yeah, exactly. Then the other thing that was happening, just to give it voice, is less VCs being invested. People may not realize this, but for those listening, venture capitalists don't sit on...when they say, "I raised a billion-dollar fund." They're not sitting on a billion dollars. That money stays with whoever said they're gonna...and then they do capital calls. That money sits wherever it belongs, then the VC takes it, then it actually does sit inside the companies. But it's like less of those checks were being written, so there's less deposits coming in, which they're dependent upon. And these guys are all burning cash. So their cash deposits are going down just because every month they all have less money in the bank. This is a company that's burning...

So you started to create this very challenging situation, where I was talking with one of my former bosses from Goldman this morning. I texted him this morning and I said, "What's going to happen?" He said, "It's going to be zero by the end of the day." He knew it, and he said he had actually shorted it in December. He knew that because of this big duration thing we just talked about, where their assets sat, and because he said their clients, where they get their money and their deposits from, were just...they had all done the venture math and realized, oh, they're just not gonna get enough cash to support what's going on.

Now, all of that is a good reason to short a bank and make money off the equity being worth less. None of that is a good reason for Silicon Valley Bank to now be in receivership. So let's talk about, how did that end up happening? I don't know if you paid attention to it, but you can take it on because I've been talking a while.

Alex Lieberman: Well, yeah, yeah. So basically, just to sum up what you said. Basically, Silicon Valley Bank, their deposits grew threefold over the course of three years. There was only so much that they could do with their increase in deposits. There weren't that many, there weren't 3x the number of startups that they could lend money to, so they had to invest in something to get their yield, so that they were making more yield than basically the yield that they were giving to their depositors. Those were mortgage-backed securities. The rates of mortgage-backed securities moved up a ton, which basically means the value of $80 billion worth of mortgages went down significantly. They sold those mortgages, or $20-something billion of them, at I believe a $2 billion loss. My understanding here, and correct me if I'm wrong, is that actually isn't what created this whole issue.

Jesse Pujji: None of it. Yeah. They actually went out and they said, "We're selling this at $2 billion loss." Frankly, they're great bankers. They said, "By the way, guess what? We've already got $2 billion of capital coming in to cover that shortfall." So it's highly conservative what they did. They could have just said, "Guys, we're selling this at a small loss. Who cares? We have hundreds of billions of assets. What's the big deal?" But they even went out, and then there was a series of missteps or...

Alex Lieberman: Yeah, so walk through basically what they did, because I think...this is so important, by the way, because I think people who haven't necessarily gone down the rabbit hole of Silicon Valley Bank assume this is Lehman 2.0, like they were financial bad actors.

Jesse Pujji: Nothing like that at all.

Alex Lieberman: But all of this actually is literally just a function of basically momentum created by founders and VCs having fear that they wouldn't be able to get their money.

Jesse Pujji: Yeah, well, I think that's part of it. They go out, so what ends up happening is there's this other bank that was a really crappy bank called Silver Gate. I don't even know anything about them; I've never heard of them. But at the same day that the Silicon Valley Bank announced, "Hey, we're gonna do this repositioning, and by the way, we've got some more capital coming in." General Atlantic is an amazing, great investor, highly blue chip. I think a lot of these people who had been sort of worried, basically said, "Oh, Silver Gate went out..." It literally happened the same day. It happened to have happened the same day, and which was all kind of a PR mistake. They should have waited. They could have announced it next week or they could've managed the news more carefully. They could have taken the capital first and then done this. Whatever. There's probably five different ways they could have managed it, but they didn't.

In our financial system, in our stock market, in our banking system, trust is paramount. When you start to lose trust, all hell breaks loose. So basically they did that; it panicked a bunch of people; that hit the stock pretty hard. The stock going down led to, like you got a lot of group texts, I got a lot of group texts, were saying, "If you have money there, take it out." In a personal thing, it was kind of a crazy situation for me. We had some money left over in the Ampush deal in an old bank account. There was still...some of it had to stay in there for escrow, some of it was just we hadn't taken care of, we hadn't pushed it out yet.

Alex Lieberman: Is that personal money or business money?

Jesse Pujji: It was business money that hadn't been distributed. My co-founder, Nick, yesterday goes, "Hey guys, just being prudent, we should take everything but the escrow out." Because we couldn't take the escrow out; that's legally required. So we did that and then both of us called each other and was like, "Man, I feel kind of bad. They were good..." But everyone's doing that, right? It's sort of a game of hot potato. Then again, if you think about how their balance sheet works, deposits are liabilities. They're things that have to they're hyper-short-term liabilities, which means anytime someone asks for them, they have to come off their balance sheet. And I was looking earlier today. Silicon Valley Bank, we said $200 billion in assets or whatever, guess how much cash they have on their balance sheet as of December 31?

Alex Lieberman: $10 billion?

Jesse Pujji: Yeah, roughly $13 billion. $13 or $14 billion. They probably have ballpark 10,000, 20,000 customers. 10,000, 20,000 customers all pull out. Say 10,000 customers pull out $5 million, that's $50 billion. Is that math right?

Alex Lieberman: Yeah.

Jesse Pujji: All of a sudden they don't have cash. I mean, they don't have the cash to cover that. There's no way, and they can't sell those things because they're long-dated, or they'll have to sell more at a bigger loss. It just leads to this untenable situation. The sad part is, it's driven by their customers and by fear. Again, you and I are sort of in the ecosystem, so by the numbers of texts and calls and emails going, "If you have money there, you should probably pull it out."

Alex Lieberman: There was one group chat I'm in, there's a post-exit founder group chat I'm in. Just in that group there was a tally taken of how much money was taken out by just those founders, and it was $2 billion of deposits.

Jesse Pujji: There you go. Yeah. I mean, you're saying that in your little group, or big group, I don't know how many people are in it, but probably not more than a hundred people. 

Alex Lieberman: 300 people.

Jesse Pujji: Okay, so in a group of 300 people, you're telling me that basically 20% of their balance sheet was gone just in that group. I think the other thing, Greg Becker went on and there's a famous thing in banking where you never tell people not to panic. Or not even banking, just in life. If the captain gets on the air thing and says, "Hey, guys, one of our engines is gone, but please don't panic." Everybody starts panicking, right?

Alex Lieberman: Totally.

Jesse Pujji: That's what happened yesterday, and it happened in big and small ways. He said those words, "Don't panic." And then everybody started panicking. And so I think the stock then keeps dropping, and basically, clearly by the end of the day, I think they tried to raise capital. Nobody wanted to put money in it. Then they tried to sell the business; nobody could buy it. Because by the way, imagine that that balance sheet every minute is dropping by a billion dollars or whatever. Every hour a billion dollars is going out. Who could evaluate it? That's why they did the only thing they could...

Alex Lieberman: Yeah, you can't. The market's just changing too fast. And so, I guess the question is, my understanding is first of all that of their, let's call it $180 billion of deposits, something like $176 billion were uninsured, because the only thing that's insured is the $250k.

Jesse Pujji: Because it's a business bank. If it's a personal bank, nobody keeps more than $250,000 in their personal accounts, but in a business account you keep millions of dollars.

Alex Lieberman: Of course. Let's just use you as the example, but I think this can be extrapolated to other founders. That million dollars from Ampush that's kept in escrow, what happens now?

Jesse Pujji: Yeah, so we left a million bucks there. We tried to wire it today after that announcement, and it's not getting wired, obviously. I don't know, is the short answer. No clue. I think the smart people I've spoken with said, "Well, look, $250,000 you'll get, and you'll probably get it next week because it's insured by the government." Which is nice. "And then the other $750k, you're in line." Now you should be a senior creditor to whatever this...when someone says receivership, that means bankruptcy. It basically means you've been put into bankruptcy so that somebody else can overwatch the liquidation of something. I've heard lots of rumors, unsubstantiated, of course, that they will get bought over the weekend, like JPMorgan or somebody's gonna come in and buy them, because now that the government stabilized it, someone could finally...

Alex Lieberman: But how do you value that business? Going back to your point, how do you value this thing that doesn't have deposits anymore?

Jesse Pujji: I think people get to keep their jobs and maybe some comp packages or whatever. Nobody makes any...the shareholders are zero or near zero, or you just buy it for zero and then some shareholders will sue and they'll get settled. I mean, that's like, Bear Stearns was bought out for two dollars. Merrill Lynch, I think, was given. Bank of America was like, "Eh, you better just give this to me because I'm not going to take it otherwise." That's the crazy thing that it's kind of a institutions don't, they don't really make anything, and so they rely on trust and relationships and credibility and all these different things.

It is pretty sad when you zoom out. It's just kind of, how everyone turned on them. And even as someone who kind of semi did that, we took out what we could, the challenging thing is it has nothing to do with them from my perspective. It's again, everyone else. It's just one of these classic panicky situations where you're like, well, I don't want to be the person left holding the bag. I don't want to be the Boy Scout here that gets screwed over by other people panicking, and so it just ended up being this situation. It's just sad that it came to that. But yeah, I think we'll get in line. I think there'll be a creditor process. My guess, people have told me Lehman's last claim was paid 14 years after the bankruptcy. People have told me three to six years, like we're not going to see that money for three to six years.

Alex Lieberman: It's wild. I want to talk for a minute about what, if any, contagion could look like, but first, quick message from the folks that pay the bills. 

Just using the example of Lehman not paying out their last creditors for 14 years, what happens to these startups that were using the deposit that they had with Silicon Valley Bank to pay for their operations? They have payroll in the next week or two weeks. Unless a deal's done by then and everyone's paid out, which I would assume the odds of that are zero, what happens?

Jesse Pujji: I hope people figure out a way. I mean, I'll give you, again, a personal anecdote. As soon as this is happening, a lot of people are pinging me. Most of all the Gateway X stuff and GrowthAssistant, all that stuff is with JPMorgan Chase.

Alex Lieberman: Yup, that's where our money's with also.

Jesse Pujji: Because I bank there personally. I'm like, all right, we're cool, we're cool, right? Then I'm like, wait a second, I've seen this before. I was young, but I remember this. I'm like, there's gotta be other angles. I started thinking of the other angles. Well, one of our, Unbloat's biggest lender is Settle, and Settle lends us money against media and inventory to buy that stuff.

Alex Lieberman: You're like, where do they get their money from?

Jesse Pujji: They bank with Silicon Valley Bank, so I immediately go, "Are you guys okay?" Because if we lose a credit line for Unbloat, Unbloat's gone, or I have to put a lot more capital into it, which I probably wouldn't do. That one seems good for now, but we have some backup options. Then I'm like, wait a second, who does payroll? I go, oh shoot, Rippling does payroll. Oh, yep, Rippling has exposure to Silicon Valley Bank.

Alex Lieberman: I saw their CEO with that thread.

Jesse Pujji: And guess what? We sent payroll money out this morning and we have no idea where it is right now. When I went on to the Slack with my Kahani folks and I was like, "Hey guys, I'm on top of this, don't worry. We bank with JPMorgan; we're all good. We have no direct exposure." Then literally an hour later I'm like, "Take that back, guys. You may be getting paid late next week because I don't know where this money...I'll figure it out, but I want you to know that right now the money's between us, them, like two banks and one bank that may not be around."

And so the stuff, not only is it gonna be highly disruptive for operations, focus, all this other stuff, but I mean, to your point around founders who, if you're burning...I'm making something up. Say you're burning $10 million in cash, or you're burning a million in cash, you have $20 million in the bank, and now most of it's gone. Even if it's an asset. Literally the startups will have the same problem that the bank had, which is, I have assets, I'll probably get them back one day, but I don't have liquidity.

Alex Lieberman: There's a mismatch.

Jesse Pujji: Yeah. Liquidity, I just don't have the money to meet my obligations. Then anyone who's near the brink...I mean, there's gonna be, unfortunately, I think a lot of fallout from this. I just hope, and I would tell anyone listening, I just hope people don't let it spread to other banks. I don't even want to say this, but the reality is if everyone starts to pull...any bank, this could happen to any bank, because if somebody wakes up and everyone starts pulling their money out at one time, any bank at any moment could fail.

Alex Lieberman: Yeah. I saw even First Republic today was down on the news, despite it having no seeming connection to...

Jesse Pujji: Well, the whole sector yesterday and today have been crushed by it. Well, partly because they do all have the same duration issue, just not as pronounced. Then they all have more diversified customers. They don't have these...

Alex Lieberman: Yeah, I think that's a big thing to point out here also that we just haven't. It's obvious, but we haven't mentioned it, is an inherent embedded risk to Silicon Valley Bank is, it's implied in the name. They've always been considered the bank of founders, startups, and VCs. There's actually a ton of inherent trust risk baked into that, because it doesn't take long for that customer base to be thinking the same exact thing. Whereas a bank like JPMorgan, obviously we have way more history in terms of trust being built, but also a far more diversified customer base for trust or fear of trust to be spreading.

Jesse Pujji: Yeah. I think it's gonna be rough for, I think a lot of the fintech or lending businesses are going to have some challenges related to this because just liquidity is going to become a more challenged situation. I posted this tweet from a buddy of mine who's a really sophisticated hedge fund guy, and I'd summarize it by, he said, "Look, the last 10 years, everybody, the whole business ecosystem is built off of free money, basically." Between, some people say zero interest rates, but he told me one time it's actually way negative interest rates. The government's been paying you to take its money because of all the PPP and the free money that's been handed out. It's been better than free money. We've been paid to take money.

He goes, "And now that's not the case anymore, and we're only six to nine months into this. Some wonky weird stuff is gonna happen because there's just a massive readjusting that has to take place in the world to adjust to this new reality." So I think this is unfortunately one of them, and again, it's sad and it sucks because it's such a great firm and they've helped so many companies and always been great partners.

Alex Lieberman: I have a few more questions before we finish things up. The first is, from a founder's perspective, obviously hindsight's 20/20. Is there a way that founders could have avoided this sort of exposure that makes sense within the context of running their business? For example, I saw a thread that Andrew Wilkinson brought back up from awhile ago, where he basically was like, he thinks it's idiotic for founders to keep their money in cash within a bank, because you're relying on the bank. It should just always be in short-dated treasuries, because you're getting yield and you have a government guarantee. I think that makes a lot of sense. The other side to it, though, is you can't operate your business, you can't run your operations on short-dated treasuries. You need cash to operate your business. How should founders think about financial risk like that? Is there anything that someone could have done?

Jesse Pujji: I mean, it's definitely gonna be a boon for all these startups who are doing treasury services, because now all of a sudden...

Alex Lieberman: A hundred percent.

Jesse Pujji: By the way, one quick aside before I answer the question. I think Warren Buffett has this famous quote where he says, "Cash is like oxygen. You don't notice it until it's no longer there, and then it's the only thing you care about." I think we literally just experienced that, an entire ecosystem just experienced that, which is like, no one was worrying about breathing until someone said, "You know, the air might leave this room." Then we were all like, "Huh, we gotta gasp for as much air as we possibly can get because it might be gone." And that's what happens.

But I mean, look, I think these startups are gonna do well and this is gonna be a positive moment for them, which is, I've been doing this with JPMorgan. I mean, I have everything in CDs and treasuries. It's really annoying, by the way. Every two weeks I have to sign a thing and da, da, da, so the money has to come out for payroll. At first I was getting annoyed by it, and someone was like, "This is just a new reality because A, you're getting yield." By the way, we were doing it for yield purposes. We were getting a rate on the money.

Alex Lieberman: Right. Versus protection purposes.

Jesse Pujji: Now I think it's gonna be even more with protection purposes to be in treasuries or money markets or things that just have more protection. And then yeah, I mean, look. I think like anything, it's funny, you just don't think about it, but you should have diverse banking partners. Even we were in the middle of trying to figure out how to do this with the private equity guys and the Tinuiti people who bought us, and we had to be like, "Hey, can we waive this requirement for the escrow and move this money out?" They obviously understood the situation; they were like, "Well, what bank account are you gonna move it to?" We were like, "We don't have another business...our S corp doesn't have another business bank account." It just doesn't. So we were like, "We'll move it to Nick's account." Even that, it's just silly. Have multiple bank accounts, have them connected with each other so that you can move money freely between them.

Alex Lieberman: Which again, just I totally agree with you, but it is so much one of those hindsight is 20/20.

Jesse Pujji: It's so annoying. Yeah, it's so annoying.

Alex Lieberman: Because it's like, of course that's not a risk that you actually thought you would have to worry about, so why would it have been worth the effort to actually keep your money in two or three different banking partners?

Jesse Pujji: Totally. I mean, I think every part of, again, these single points of failure, they don't matter until they matter. I think about that with GrowthAssistant in the Philippines sometimes. I'm like, well, should we be in multiple countries? What happens if just some treaty breaks and all of a sudden we can't employ those people? That's a real single point of failure. I think, as you get bigger, they don't matter in the early days, but as you get bigger, you gotta get...

Alex Lieberman: Building redundancies in actually is a really important thing to think about. Any final thoughts on the situation? Which obviously, if there's any new information that comes out, we'll talk about it on an upcoming episode. Any final thoughts before we finish up with a question from one of our listeners?

Jesse Pujji: No, I think I said it to Nick today. I was like, man, I'm so glad he was on top of this. I probably would've heard the news. I do think there's something to be said about, again, the sad part about them failing, but there are plenty of companies who did get their money out before this happened. Now, they might've caused it to happen, but I don't know which side you go on, but it is important to be on top of these things. It is important to...I am one of these founders who believe the founder has to, it doesn't matter how big the company is, has to ultimately own the balance sheet and own that cash number. Nobody else can ever fully, truly own that. I think the only other thing I would say of one of my lessons has always been, I gotta know where the money is. I gotta know where it's going. I still do with every business at two...I don't know if you ever did this. Do you do a check run? Do you know what check run is?

Alex Lieberman: No.

Jesse Pujji: It's like this old school thing. You're gonna laugh when you hear this. So back in the day, every two weeks, the boss, someone would bring in the checks and the payroll and the boss would go, I'm gonna sign all these checks. I'm gonna know where all the money's going out. Something somebody said to me early on, that you have to take that responsibility. A year past being the CEO of Ampush, I did it at Ampush. I do it with every single Gateway X company. Which it's obviously not checks anymore, but every two weeks before any money goes out, someone has to sit with me for 15 minutes and go, "Here's payroll for these two weeks. Here's who it's going to. Here's this reimbursement we're paying."

Alex Lieberman: Smart.

Jesse Pujji: I've just always done that. It's just a simple thing. I have to see everything going out. Ultimately...and by the way, I find all kinds of funny, interesting things in that process.

Alex Lieberman: I mean it's honestly, someone could argue it's 15 minutes wasted. Someone else could say it's a force function for you just understanding your business better than anyone else.

Jesse Pujji: Yeah, and I could tell you the cash balance of every business right now off the top of my head, because I do that every two weeks, because it's just a cash bridge between the...

Alex Lieberman: Yeah.

Jesse Pujji: So I always know what the cash is.

Alex Lieberman: I think that's so smart. Okay, well, on this really positive light note that we've been talking about for the last 31 minutes, let's finish up with a Startup AMA. We have a question from Reggie, who's a listener in SF. Reggie asked, and it was a question that actually came in in the last 24 hours. The question was about comms. When bad news happens within your company, whether it's you're laying people off, whether it's a cyber attack, whatever it is, something that is not positive within your business, what are your strategies for communicating to your company in a way that is both honest, but isn't you saying, "Don't worry, you have nothing to fear."

Jesse Pujji: "Don't panic."

Alex Lieberman: "Don't panic."

Jesse Pujji: The answer is obviously, it depends. It depends on the nature of it a sexual harassment issue? Did you lose a lot of money at Silicon Valley Bank? Did your biggest client leave? I mean, I've probably, in all three of those I've had to communicate versions at different times. A lot of the answer is, it depends. I think the more you can put yourself in someone else's shoes for any kind of communication, the better. Empathy. What's their thinking? One of my frameworks I like is "the I, the we, the it." What does this mean for me? What does this mean for my team, and what does it mean for the company? The whole thing. Being able to very clearly spell what that means.

I think the other big one for me is being honest about the current state of it, and then what are the next steps, and when can they hear again. It's just like any kind of trust-building situation, which is just like, okay, here's where it stands. Here's what we're doing to figure it out. Because a lot of the times you're just communicating without, you don't...even today I was like, I said it, luckily, and I was like, "I'm communicating what I know right now. I don't think..."

Alex Lieberman: Totally.

Jesse Pujji: "But I will let you know again today where we stand," and then nobody...the team's very small, but nobody was mad that I said payroll may be delayed. I think being honest about what you know, where you stand, what facts you are aware of, what things you don't know, right? Like "I don't know this, I don't know this, I don't know this, and here's what I'm gonna do next, and here's when you can expect to hear from me again."

Alex Lieberman: Yeah. I mean, it sounds like basic stuff, but at the end of the day, it's like this basic stuff that leaders and founders mess up all the time. It's like overcommunicating. It's putting yourself in the shoes of the people that you're speaking with. At the end of the day, it's building trust. How can people trust you? Because moments like that, any moment, whether you talk about a rift, whether you talk about some article that came out about your company, it's potentially a chink in the armor of trust that people have in you. It's like, how do you reestablish that?

I think one of the biggest things that comes to mind for me, and it goes back to empathy, but the rule of thumb is, write down every question that you could envision your company asking you about what has happened, and to the best of your ability, obviously not breaching confidentiality that happens with individuals within the company. How do you answer all of those questions proactively before people ask them? Because I think what that does is it leaves less up for interpretation, because we as people are story-making machines, and people will create stories if they don't have answers. The second is, I think it actually helps build trust when someone says, "Oh wow, Jesse, Alex, whoever it may be, they've thought about all of this and they have done their best within their ability with the information they have to give us the information they have."

And I think, to your point, the other thing you said is, if you set an expectation of "I'm going to overcommunicate, I'm going to speak always about what the current situation is based on the knowledge I know, but that could change in the future because new information is gonna come in, but you're gonna always know what the current information is, and I'm always gonna have some plan based on that information of how we are going to push things forward." I think that's all you can ask for from a leader.

Jesse Pujji: Yeah. The only thing I would add, it's something I learned. Type 7s, one of our traits, I don't know how much you know about yourself, I'll teach you about yourself. We don't like negative. Generally, we like positive and happy and we sort of avoid the negative, the things that, "Ah, I don't want to deal with that." And I think for me, the way that used to show up was, in a tough situation, I would not sort of fully allow the bad to be there. I'd go, "Oh yeah, yeah, but we'll..." I'd spin, basically. I wouldn't even mean to be spinning in a manipulative way. I would just naturally avoid it and then I wouldn't talk through it or think about it.

Actually, this is obviously a slightly different situation, but we had a big session this week. The whole Kahani team came in town and we did a big thing on product market fit. Are we 10 out of 10? Are we 5 out of 10? The numbers were kind of low, and then we did this really cool exercise, which I'll tell you about sometime, where you're like, how did we all create this?

Alex Lieberman: By the way, just before you say it, we did an episode on where you're at on the out of 10 scale for Kahani, so if you haven't listened to the episode yet, go back in the feed. Jesse and I talked about where Kahani is from a product market fit perspective and how he gets there. Sorry, keep going.

Jesse Pujji: We went through the intellectual part of it and everyone's like, "Yeah, there's this issue and we haven't...our customers here." Then I paused for a second, and I wouldn't have done this five, seven years ago. I looked around, I'm like, "How do you guys feel about that? How do we feel? This feels frustrating. I feel really frustrated that we haven't found it yet." You could just see people's bodies releasing. "Yeah, this sucks. I wish..." Everyone kind of did that a little bit. Then everyone was like, "Yeah, but this is what it's all about." All of a sudden it was a very authentic rally, if that makes sense, versus a contrived rally. We actually released and felt our feelings.

I think the other thing you can do when you're delivering bad news, to answer Reggie's question, is make room to...not just empathy of what it means for you or something, but also empathy about how it must feel or how you're feeling. If I were a CEO and I have $10 million from this SVB thing stuck in a bank account and I'm burning cash right now, I would be, "Guys, I'm feeling a little scared right now. It wouldn't surprise me if you're feeling scared also."

Alex Lieberman: Totally.

Jesse Pujji: Yeah. I think being that honest around your emotions and creating that space will build a ton of trust with everybody.

Alex Lieberman: Yeah, I think that's such a good point to leave off on. I would say, yeah, I'm the same way. I think it's so easy to fall into this bucket of what could be considered by some as blind optimism because we like to convince ourselves that everything will always be okay, but I think inherently it's this protective mechanism for not displaying weakness, and for creating this alternate reality that actually sometimes does a disservice to you making changes or doing things that put you back on the right track. I think that's spot on.

This has been awesome, and honestly I feel like you know so much about the intricacies of financial services and how the banking system works. And so I feel like I got a masterclass from this. Again, this is a really shitty situation for everyone that is on the front lines dealing with the SVB situation. They've been such an important part of the ecosystem for so long, so I know I speak for both of us where I think we both can say that we hope this finds a resolution. We hope that this finds a buyer, that the companies that are really scared right now do find a resolution soon. And any founders that are trying to navigate this situation or just want someone to chat to, I know Jesse and I are always looking to just spend time with founders and provide perspective where it's helpful. Jesse, anything else before next episode?

Jesse Pujji: No. I hope this episode, for those who are wondering, I think there's a lot...I did a poll yesterday and more than two thirds of my followers had no clue what was actually going on. So I think that's when I was like, let's do an emergency...we need to explain this to people.

Alex Lieberman: I also think it was higher, by the way. I think it was higher. I think some people are saying they know. I think it's a higher percent.

Jesse Pujji: Of course. Yeah, yeah. I'm sure I don't even...neither of us fully grasp it either.

Alex Lieberman: Yeah, yeah.

Jesse Pujji: I think hopefully this also is timely for everyone who's wondering and listening, and the Crazy Ones out there can get educated around it.

Alex Lieberman: Totally. Love it. Cool, man. Well, this was a really good conversation. We are super excited to catch you all next episode. As always, send us a message saying hi. Ask us any questions you have at and we'll catch you all next episode. Take it easy, everyone.