With the failure of Silicon Valley Bank, the U.S. startup ecosystem lost an important business partner. But the greater fallout could be what’s coming next: a spate of tighter regulations directed not just at midsize banks like SVB — but also at private companies and funds. Although SVB’s failure can’t be blamed on the venture ecosystem, some policymakers have joined the general public in maligning the bank’s depositors — in large part venture-backed startups. This negative narrative has immense implications for the venture community.
This is an inflection point. In a shift from the last two decades, policymakers and regulators had already begun to scrutinize the private markets. If more lawmakers become convinced that Silicon Valley companies require greater supervision, the consensus could embolden the SEC to accelerate its agenda for increasing regulation in the private markets and fundamentally altering venture as we know it. And the scale of the SEC’s proposed reforms should alarm entrepreneurs, investors and employees in the innovation economy.