The collapse of Silicon Valley Bank (SVB) a month ago created a seismic shake-up for many entrepreneurs and CEOs in advertising, which exposed the fragility of the fractional banking system. Companies discovered that their money in the bank is not physically there and can be loaned out to others for various lengths of time. When the bank collapsed, ad executives were in disarray, and some lost funding as their ad tech business could not withstand the financial meltdown. In this article, we examine the fallout from the SVB collapse and the lessons the advertising industry can learn from it.
SVB Collapse Shakes Ad Industry
Many ad executives discovered that banks’ confidence is all relative, and the weakness of one bank can affect others. For instance, Credit Suisse was not affected by the SVB’s collapse because it was inherently unstable, but because it was considered the weakest link. Ad executives’ mindset has changed, and they are now more concerned than ever about liquidity in the supply chain. They have also become more strict about who they bank with and lead to a lot more diversification.
Ad Tech Bosses Review Existing Relationships
Ad tech bosses are reviewing their existing relationships with banks and pausing those that they think are a risk, or introducing tighter insurance provisions. This is because there’s a fear now, and it’s rooted in sequential liability. Clauses written into ad contracts stipulate that if the company ahead of another in the flow of ad dollars doesn’t get paid, they don’t get paid. Normally, this isn’t a big problem, but it tends to become one when economies get knocked sideways. The pandemic made that all too clear for ad-tech bosses.
Lessons for Ad Industry
Ad executives should learn from the SVB collapse that they should spread their investments across different banks. Going forward, it will mean being stricter about who they bank with and lead to a lot more diversification. For many future startups in this space, it will mean being a lot more strict about who they are banking with and lead to a lot more diversification. They should be more concerned than ever about liquidity in the supply chain and seek quick access to cash.
The collapse of SVB has created a tough lesson for many ad executives. Confidence in banks is all relative, and it can change quickly. Ad executives have become more cautious about their banking relationships, and they are spreading their investments across different banks. However, the flight to quality may come at a steep price. Big banks have been overflowing with cash in the wake of Silicon Valley Bank, and they will become more cautious about how much they lend and to whom. This will lead to economies getting tighter, which never bodes well for advertising.
