As venture capitalists and tech founders exchanged frenzied WhatsApp messages that fueled a historic rally on a Silicon Valley bank on March 9, the lender’s other important clients were toiling in the dirt, oblivious to what was coming.
Jasmine Hirsch, general manager of Hirsch Vineyards in Sonoma, said she found out the $42 billion bank was run by a family member in finance the day before the lender was bailed out by federal regulators, since they had no prior knowledge of its problems.
“We weren’t in the VIP group chat,” she said.
In the weeks that followed, I was baffled by comments that SVB clients should have done more due diligence on the bank.
I’m like: ‘When was the last time You Have you looked at your bank’s balance sheet? Like, we are farmers! We are confident that our bank will be there tomorrow.”
With SVB sold in parts by the government, winemakers in the fertile wine regions north of San Francisco risk losing a vital partner. SVB’s wine division has been a mainstay of the sector, lending more than $4 billion to wineries since 1990 and publishing an annual State of the Wine Industry report that has grown so large that it has received coverage in The New York Times.
Paul Mabray, CEO of Pixwine, a wine discovery platform, called the wine division the “jewel” of the bank, adding, “It was really rooted in the community.”
When it collapsed, SVB was taking out $1.2 billion in winery loans. Now its clients worry about where to finance them as they grapple with the rising costs of doing business and the worsening effects of climate change.
Their fears are justified. The wine business is notoriously risky, low-margin, and very slow. One of the reasons for its success for the SVB was the prestige it gave it.
“Starts and wine — they connect really well,” said Alessandro Scheser, who worked at SVB a decade ago and has worked with him since. “The SVB will obtain wine from wine customers and then send wine to junior customers.”
An executive at a major venture capital fund recounted asking SVB to sponsor an event. “Why don’t we just serve wine?” The response came. “There were clubs for her,” they added. “No bank in New York or London will serve wine for your event.”
Another investor in the venture said that making loans to wineries is about the relationships they can generate — opportunities to secure deals or withdraw deposits.
“They are all passion projects,” this person said of the vineyards. “You can (their bank) if you care about these winery owners—and they’re diluted capitalists.”
The fate of the SVB’s wine department is unclear. A buyer less dependent on those technology relationships may not feel tempted to do so, nor is it clear that it can function as a stand-alone unit.
They are confident the wine division will find a buyer, said the marketing director for a wine company in Napa, who asked not to be named.
“This industry is full of hard assets — dirt and grapes and bricks and mortar — so it’s hard to imagine those not attracting any bank picking up the balance sheet,” this person said. “I think it’s a lot more than tech startups.”
Not everyone shares that sunny outlook. Wildfires and a global pandemic have hit tourism, which before Covid could account for more than 50 percent of sales for some small wineries. Silicon Valley wine expert Rob McMillan, who founded the division 32 years ago, has written about his work. Blog in October that “the mood in the industry has turned decisively negative compared to last year”.
In the SVB’s most recent annual report, published in January, it diagnosed a long-running crisis: Young people were looking forward to healthy drinks like kombucha more than Cabernet or Merlot.
The wine industry as a whole grew 20 percent annually in the early 2000s, but growth fell to 10 percent in 2010, stagnated by 2016, and has contracted over the past two years. The only thriving consumer segments were those between the ages of 60 and 90.
Macmillan lamented to The New York Times in January that the industry’s inability to appeal to millennial consumers was “worse than I thought,” adding, “I’ve been talking about this problem for seven years and we still haven’t responded.”
Now the crisis is more acute — and personal. In a blog post on Sunday, Macmillan reflected on “one of the worst weeks of my life.”
“All I knew was that I had lost a significant amount of money in the bank’s stock, and the FDIC had given me a 45-day contract to work for them. That would make anyone nervous,” he wrote.
He expected the buyer to come to “a formal resolution within the next three weeks,” adding that he and division manager Jed Taborsky had received more than a dozen calls from “seriously interested organizations” regarding the wine division as a stand-alone purchase.
Some existing customers will love it. Hirsch said she opened a new bank account the day federal regulators seized SVB, but has yet to deposit money there. Her greatest hope — shared by many others who have benefited from the close relationships and personal service that SVB provides — is that she doesn’t have to.
“Everybody says like, isn’t this the safest place right now?” she said, citing messages from the SVB saying they are open for business, honor loans, and are looking for new business.
In the meantime, some in the community can’t help but feel the whole situation could have been avoided if Tech Bros along the coast had just kept quiet and not siphoned their money from SVB. a lot.
“The aloofness of that navel-gazing world—they’ve dropped their own bank!” said one vineyard executive who did not wish to be named. “What’s ironic is that it’s just classic tech bullshit. I mean, no offense or anything, but don’t you think technology destroys everything it touches?”