Silicon Valley Bank’s recent downfall had multiple contributing factors, from the way it managed risk to sharp interest rate rises. But one factor in particular – its failure to pay adequate attention to its online positioning – proved decisive.
Silicon Valley Bank (SVB), which held funds for nearly half of US venture-backed companies, made an announcement on Wednesday 8 March 2023 that triggered a panic response. The announcement came in the form of an SEC filing (called an 8-K), coupled with a highly numerical press release, both of which were aimed at regulators, analysts and banks, and designed to protect the share price. However, the announcement failed to resonate with customers, who responded by pulling their funds from the bank, leading to its rapid collapse.
The online harbingers of SVB’s demise
As Lulu Cheng Meservey, Activision Blizzard’s Chief Communications Officer and an expert in the changing communications landscape, points out, a news cycle is now 24/7, so there is no reason for an organisation to wait until business hours to release information that could reassure customers. Given that its problems were receiving international attention in a world where the internet never sleeps, it is surprising that SVB chose to wait over 22 hours to speak to its customers.
In the meantime, the early-stage start-ups who were customers of SVB relied on the commentary they could find in the online public sphere: on search engines, in the online press, and on Reddit and Twitter. Well-known Silicon Valley investor Jason Calacanis captured the tone (and people’s attention) in one of his all-caps tweets, announcing “YOU SHOULD BE ABSOLUTELY TERRIFIED RIGHT NOW” in a tweet that has had 4.9 million views at time of writing. Panic quickly spread throughout social platforms, talk of a bank ran swiftly gathered pace, and a self-fulfilling prophecy resulted.
The new phenomenon of the social-media driven bank run
Delayed outreach in an era of instant access to information prompted panic en masse, and what happened next was the online, social-media driven version of the Mary Poppins Bank Run. The largest bank run in modern US history had previously taken place at the Washington Mutual Bank in 2008, when $16.7 billion was withdrawn over the course of 10 days. But that was just a trickle in comparison to the reported $4.2 billion in 24 hours that was withdrawn from the SVB coffers in March 2023.
In today’s online world, customers no longer have to line up outside a bank to withdraw their cash – it can be done in seconds with a few taps on a mobile phone. Becoming the victim of an industry it was largely invested in, SVB was guilty of a distinct failure to be crisis-prepared in the online field. Consequently, it has now become a case study in what happens when you don’t make every effort to control your own online narrative. It failed to tackle the full weight of public conjecture, with a lack of strategic coordination and intervention deployed to ringfence the panic caused by “venture catastrophists”, a term coined by Professor Scott Galloway to describe casual online pundits.
Reddit and the growing influence of online investing communities
The SVB case is far from the only example of online activity contributing to rapid fluctuations in the value of a business. Online investing communities on platforms such as Reddit and Stocktwits have been instrumental in the phenomenon of meme stocks and a shift in power over market sentiment.
Perhaps the best-known case of meme stocks, which are valued on hype rather than fundamentals and subject to volatility driven by social media, is that of video game retailer GameStop. In early 2021 GameStop was transformed from a struggling company to a stock market marvel almost overnight, after a shock buying spree in its moribund stocks, launched by a group of retail investors on Reddit called r/WallStreetBets, sought simultaneously to profit and punish large hedge funds holding short positions in the retailer. The mania subsided within weeks, wiping $27 billion off GameStop’s artificially-inflated valuation. Two years on, as the meme stock phenomenon endures, with Reddit users continuing to analyse the stock markets and identify viable shorting targets for individual investors, it’s clear that internet platforms and communities now have a huge influence on real-world phenomena, posing a threat that businesses can no longer ignore.
How businesses can take back control of the social media narrative
Sophisticated social media intelligence mapping tools are now available to mitigate this threat by arming businesses with a clear view of how they are being presented and discussed across social media. In an unplanned event, such tools are key to informing an effective communications strategy.
Earlier on 8 March, Silvergate, a bank popular with the crypto industry, announced it was shutting down operations. Analysis of activity on Twitter using our proprietary technology shows that in the hours following the release, Twitter users had already begun catastrophising. The terms Silvergate, Bankrun and Crypto, or in some cases ‘krypto’, had already begun to be correlated, either as tags or mentions, as parenthetical narratives to SVB’s downfall. Below is a graphic taken from our mapping tool, showing the geographical location of where these narratives were concentrated:
In March, global banks lost nearly half a trillion dollars in market value, while Bitcoin rallied over 28% in a 24-hour span. Some speculate that the motive behind some of the venture catastrophists’ online commentary was to feed into the frenzy of comments, drumming up a lack of faith in the US dollar. Whatever the motive, tracking narratives enables us to identify the harbingers of consumer reaction. Silence from SVB, in this case, only served to amplify anxiety, leaving the stage free for others to control the narrative.
In a world of 24/7 reporting and instant access to news and commentary from both credible sources and those looking to spread disinformation, it’s more vital than ever to continually monitor online activity, be prepared for a crisis, and be ready to respond rapidly and in a controlled manner to online activity to retain control of your narrative.