How the fallout from the bank’s failure affected the startup ecosystem

Yahoo Finance’s Allie Garfinkle joins the Live show to discuss key takeaways from Shoptalk 2023, the collapse of SVB, and how the failure of the US banking system affected the startup ecosystem.

Video transcription

JARED BLIKRE: One of the companies at the center of the SVB collapse is TomoCredit. For more on how they’ve been impacted, let’s welcome in and Yahoo Finance’s Allie Garfinkle. Allie, then give us the skinny ones.

ALLIE GARFINKLE: So…give us the skinny ones?

JARED BLIKRE: Yes.

ALLIE GARFINKLE: No, I’m trying to remember the last time someone said that to me.

JARED BLIKRE: Oh, am I getting old myself? I hope not.

ALLIE GARFINKLE: So TomoCredit, right, they’re a fintech startup that helps consumers who have less financial access build credit. And they’ve gotten a lot of buzz in Silicon Valley. They have collected around NOK 130 million to date. And they were intertwined with SVB at the time it collapsed. They actually have a $100 million warehouse facility at SVB that is still intertwined with the bank.

Now I have spoken to them. I spoke with their co-founder, actually CEO and co-founder Kristy Kim, and I tried to understand how that had affected Tomo. But what was interesting is that two major themes really emerged. The first was that her case is that fintech is more important than ever. Fintech, for example, has – part of the ethos of fintech, right, is that the system is not perfect as it is and can be improved. So I think we have seen that in full colour. I don’t know if I need to say more about it.

JARED BLIKRE: Something is disturbed. it is–

ALLIE GARFINKLE: Something is being disturbed, isn’t it? That is definitely true. But it’s– the case she made is that fintech, because of the ethos of it, because it’s so devoted to the idea that we can make banking better, that’s really where– it’s really where fintech can improve. And it made a lot of sense to me as a theory. The other thing as well, that was perhaps the more salient point that she mentioned, which was that the barrier to entry for fintech is actually going to be higher after the SVB collapse.

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Now, why? As it turns out, SVB was an early key partner for many of these fintechs. Many of them have business models that have never been tried. And SVB was particularly willing to try these business models, do due diligence, do extra due diligence, and try to find out if they could really support these companies. So the banks– or this banking collapse is really going to leave a big gap in that area.

I would actually love to read you a quote from Kristy because I thought it really distilled the situation down. “For an early-stage company that’s about to launch, it’s going to be difficult. For example, if I were to launch TomoCredit this year, I’d be completely screwed. There’s just nowhere to go. And it’s interesting because the support meant a lot to me then. From a selfish perspective now, it might actually be a competitive advantage for Tomo because it’s wiped out the chances of a copycat coming out this year or next.”

So what she was implying to me was basically this catch-22 where clearly the way fintech is looking to reinvent the system is important, but that the startups that are trying to get into fintech are now going to have more trouble get a leg up than they ever have.

JARED BLIKRE: Not only that, guess what, interest rates are higher, the cost of capital is up. It affects all startups, 100% of them. So–

ALLIE GARFINKLE: And VC funding.

JARED BLIKRE: Yes, it definitely adds to it. So you actually have a chance to attend Shoptalk this year. What was the most important takeaway from Shoptalk?

ALLIE GARFINKLE: That’s right, Jared. There is one important takeaway here, and that is that the AI ​​hype cycle is in full swing. At Shoptalk 2023 this week, AI was everywhere, whether it was on panels, journal interviews or green room conversations. But WndrCo co-founder and Hollywood legend Jeffrey Katzenberg had an unexpected catch. I was joined by him and Netomi’s CEO and founder Puneet Mehta to describe how they think about AI and where the technology is right now. Take a listen.

JEFFREY KATZENBERG: I think, like so many people, we are looking at the possibilities around AI and are genuinely excited about it. I think you hear from a lot of the great wizards of our world, you know, Bill Gates, the people who have really been the pioneers of the last generation.

You know, I think everyone agrees that this could actually be the next defining moment in our technological evolution, if you will. And with that comes an incredible promise. Today, I think the enthusiasm we’re hearing, unbridled enthusiasm, is about generative AI and all its applications around creativity and storytelling and art. And it’s really quite spectacular. That’s not what I’m interested in.

ALLIE GARFINKLE: It is a special kind of AI that you are – that you are a supporter of, Puneet, sanctioned AI. What does that mean?

PUNEET MEHTA: So what sanctioned AI means is you get to leverage all the great things that generative AI brings to the table, but with a– in a fail-safe environment. So you need a safety net around that. You must be able to activate what role AI plays. Is it autopilot, where it helps customers autonomously? Or is it a co-pilot, where an employee helps? You need brand safety filters. What are the things that are allowed to say, not allowed to say? You need it to follow business policy and procedure.

You need to be able to revise the work that AI has done relatively easily. And then you need escalation procedures, where if something goes wrong, how can you get someone to step in and gracefully save the moment? So there are all these things that will apply to employees. Now, AI, when it enters your workforce, you have to look at it as an employee. To make it productive, you need all these measures. So sanctioned AI allows you to use all the amazing capabilities of generative AI, but for the enterprise in a fail-safe mechanism.

ALLIE GARFINKLE: The chaos of technology versus the chaos of Hollywood, you talk a lot about the parallels between the two. And especially at this moment, I’m curious how you think about these parallels?

JEFFREY KATZENBERG: Well, I… you know, I think they’re actually quite different. And what I would say on the technology side of it is, if you look at 2010 to 2020, the impact of technology, digital technology, across every facet of our lives has been beyond anything anyone could have thought of or imagined. From 2020 to 2030, I think the impact will be 10 times what it has been over the last decade, which we can’t really fathom. So gigantic.

So I don’t see this as a troubled time for technology. I think it’s the time of opportunity for that, and why I’m so excited about it. On the Hollywood side of it, it’s a transformative moment in time. And they are in the process of transitioning into a new relationship with their customers. And it is not, I think, crystal clear yet what that relationship is going to be.

How important will cinemas be to their customers? You know, what is the place for digital distribution? What is the content window? How much of it? Where– how is it priced? All of these things, frankly, are being redefined in this moment. With that, a certain consolidation takes place.

And so I think the next 18 months is the time for it to reconfigure itself and have its next renaissance. I couldn’t be more optimistic about the possibilities around content, content creation, content distribution. And we watch more TV, more movies, more video today than we ever did in our lives before. And it doesn’t go away. If you’re in business today, there are three things that are still critical to your health and happiness and continued prosperity – more, better, cheaper.

[LAUGHTER]

Right? Those are the three things. Usually–

ALLIE GARFINKLE: It all sounds pretty good.

JEFFREY KATZENBERG: Usually you’re told you have to pick two, right?

ALLIE GARFINKLE: Do you think you can get three?

JEFFREY KATZENBERG: Yes, I think that with AI and the proper deployment of AI, there will actually be an opportunity to do all three of these things.

PUNEET MEHTA: We could look back at this moment, it could end up being the industrial revolution moment for technology, where, you know, AI ended up getting us to a place where new types of jobs were created, there were new types of skill sets, the impact it’s going to have on education, on healthcare. But yes, we are most excited about how the company is going to adopt it and really build that customer connection, that customer love.

JARED BLIKRE: It was Allie Garfinkel at Shoptalk 2023.