It\u2019s hard to know how this bank mess will shake out for the ad industry. But there are clues of a correction that was a long time coming.\u00a0<\/p>\n
What has transpired in the month after the collapse of Silicon Valley Bank has been a protracted reality check of sorts for entrepreneurs and CEOs in advertising.\u00a0<\/p>\n
The bank\u2019s decline was a harsh reminder that in a fractional banking system, companies\u2019 money is not really at the bank \u2014 and it never has been. Really, it\u2019s being loaned out to others for various lengths of time and doesn\u2019t have to be returned until that period is up. So when things go sideways and people rush to take all their money back from a bank<\/a>, those same people are usually surprised to realize that it\u2019s not actually there.<\/p>\n No prizes for guessing what happened when Silicon Valley Bank imploded.\u00a0<\/p>\n \u201cWe initially had one publisher reach out to communicate their desire for us to hold any payments to their accounts at Silicon Valley Bank because they had a concern about it, but then very quickly there was a tsunami of publishers asking the same thing,\u201d said Andrew Casale, CEO of Index Exchange.\u00a0<\/p>\n Ad execs, like so many other customers of the bank, were dunked into disarray.\u00a0<\/p>\n One of them told Digiday that they immediately started working with investors to thrash out a bridge loan. Another told Digiday that their ad tech business lost all of its funding because of the financial meltdown. AcuityAds, which had over 90% of cash in the bank, had to halt the trading of its stock. Others like Place Exchange asked all clients to pause any scheduled payments until further notice.\u00a0<\/p>\n And all of that was just in the first few hours of the run on the bank.<\/p>\n Then the panic subsided. Silicon Valley Bank was backstopped by the Federal Deposit Insurance Corporation and the government. Ad execs, and the rest of the bank\u2019s customers, were able to access their money.\u00a0<\/p>\n Catastrophe averted? Not quite. The collapse of Silicon Valley Bank shook a lot of chaff loose. And ad execs are starting to see things they may not have anticipated: namely that confidence in banks is all relative.\u00a0<\/p>\n Look at what happened to Credit Suisse, for instance. It didn\u2019t get singed in the wake of Silicon Valley Bank\u2019s implosion because there was something inherently unstable in it. It got burned because it was seen as the weakest link \u2014 just like Bear Stearns and Lehman Brothers before it. And once those narratives are up and running, they\u2019re hard to stop. Banks are built on confidence.\u00a0<\/p>\n \u201cWe had never considered the origin bank account of a customer or a partner to be a risk vector up until now,\u201d said Casale. \u201cThat\u2019s been the biggest takeaway for us from this tough period; we\u2019ve been doing the homework on our side to understand the organization of our customers across the banking sector.\u201d<\/p>\n It\u2019s a tough lesson for anyone \u2014\u00a0let alone those in an industry like advertising where financial discipline hasn\u2019t exactly been endemic. That\u2019s changing now, of course. The mindset of these execs is definitely shifting. And that\u2019s made them more concerned than ever about liquidity in the supply chain, said Nick Carrabbia, evp of Oarex \u2014 a platform for ads businesses to obtain fast funding. Now, they want quick access to cash.<\/p>\n \u201cI was a bit worried because all our expenses and salaries are paid to our employees from SVB bank,\u201d said Sameer Ahmed Khan, the CEO of martech firm Social Champ. \u201cI also realized that I shouldn\u2019t have put all my trust in one bank. This incident made me spread out our investments.\u201d<\/p>\n From chaos comes order, to paraphrase Nietzsche.<\/p>\n \u201cGoing forward, I think 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,\u201d said the founder of a digital media business, who traded anonymity for candor to share their experience of the collapse of Silicon Valley Bank.<\/p>\n Call it a flight to quality. But it could come at a steep price. Big banks have been overflowing with cash in the wake of Silicon Valley Bank. The last thing those lenders will want to do is put that money to work and start lending it out. It could be drained from accounts just as fast as it flooded them.\u00a0<\/p>\n Which is to say, banks are going to become more cautious about how much they lend and to whom.\u00a0<\/p>\n When this happens, economies tend to get tighter. And this never bodes well for advertising. True, the fallout from Silicon Valley Bank is more of a headwind than a hurricane to ad spending, but marketers, publishers and ad tech<\/a> execs remain wary nonetheless.\u00a0<\/p>\n \u201cMy fear as one of the few minority-owned companies in the space is how many fledgling minority-led digital start-ups may NOT get the funding they once would have, given the banking climate and how VCs are approaching our digital communities of color,\u201d said Rene Alegria, CEO of bilingual and bicultural media platform MundoNow<\/a>. <\/p>\n There\u2019s a fear now, and it\u2019s rooted in sequential liability. Clauses written into ad contracts that stipulate if the company ahead of another in the flow of ad dollars doesn\u2019t get paid, they don\u2019t get paid. Normally, this isn\u2019t a big problem. But it tends to become one when economies get knocked sideways.\u00a0<\/p>\n The pandemic made that all too clear for ad-tech bosses. Silicon Valley Bank made it even clearer, with ad bosses reviewing their existing relationships and pausing any they think are a risk, or introducing tighter insurance provisions.<\/p>\n \u201cEveryone we\u2019re working with right now is concerned about where the risk \u2014 or rather the ad dollars \u2014 are coming from across the supply chain,\u201d said Carrabbia. \u201cSequential liability is, for the most part, the concern here. It\u2019s always been a concern. But in the aftermath of Silicon Valley Bank, people are seeing how that can play out.\u201d\u00a0<\/p>\n Often, it plays out with publishers holding the bag. The lessons drawn in hindsight are instructive as ever for them. They\u2019ve been asking more questions about the financial health and integrity of their ad-tech partners since Silicon Valley Bank started wobbling. That\u2019s bad news for any vendor that didn\u2019t have strict credit policies \u2014 or those that were all in on growth, risks be damned. The weaker companies continue to be weeded out from the supply chain.\u00a0<\/p>\n \u201cWe\u2019ve seen a fair bit of this in recent weeks,\u201d said Casale. \u201cPublishers are doing even more due diligence on their vendors these days.\u201d<\/p>\n Add the collapse of Silicon Valley Bank to the ever-growing list of events contributing to a more consolidated supply chain.\u00a0<\/p>\n<\/div>\n