Despite being exposed to the tune of $8 to $10 million in the collapse of Silicon Valley Bank, Mark Cuban considers himself relatively lucky.
Speaking on Twitter Spaces this weekend, Cuban laid bare what he believes the priorities should be for impacted parties: supporting startups to sign off their payroll and invoices to vendors, so their creditors in turn can continue to operate.
Minimizing layoffs at companies directly or indirectly linked to SVB is so key that Cuban has begun signing checks himself to ensure the bills get paid, saying he refuses to see the failure of his “baby”—affordable medication platform CostPlusDrugs.com.
The move comes after investors and depositors tried to withdraw $42 billion from tech stalwart Silicon Valley Bank, according to a California regulatory filing at the end of last week. Since then the U.S. Federal Reserve has said it would ensure that depositors at Silicon Valley Bank and Signature Bank—which also failed over the weekend—were protected in full, even beyond the $250,000 normally covered under federal deposit insurance.
Speaking to Twitter Space host Mario Nawfal, Cuban said the much-feared domino effect will depend on the percentage of uninsured deposit returned to investors. If it’s between 50% and 60%, he said, the market will have “some confidence” in the system. If it’s less than 10% then questions will begin to be asked, and if nobody gets anything then there’s a risk of a “huge contagion,” he warned.
The Shark Tank investor said that in that scenario: “Payrolls aren’t made, vendors aren’t paid, and those vendors can’t pay their payroll, so there’s a second, third, and fourth order.
“If there’s no money paid out in advanced dividends then we have a problem. If there’s a material amount that covers enough of the startups and the wine industry for the companies impacted to pay their bills and make their payroll, then six months from now we won’t remember the details.”
He added if customers get a 50% return by Wednesday, the next question is how communication over the remaining 50% will be handled: “If it’s all uncertainty and we don’t know any type of timeline and there’s no ongoing communication that’ll create a small contagion, but still a contagion.”
In response to how he’s keeping his impacted firms going, is answer was simple: “I’m writing checks.”
He added: “I’m only exposed to maybe $8 million to $10 million dollars so I’m fortunate. But CostPlusDrugs.com deals with SVB. We had I think $3.1 million there, so we’re scrambling and opening up accounts and staying up late talking to banks to get accounts opened up. I’m writing checks on Monday morning first thing to make sure that payroll and payables are covered. CostPlusDrugs.com is my baby right now—I’m not letting it go anywhere—and so I’m playing offense in every way I know how.”
‘Nobody could have predicted this’
Despite claims that VCs and bosses at SVB should have seen the run coming, Cuban insists the scale and swiftness of the bank’s collapse couldn’t have been predicted.
He added founders would have been unlikely to rank a bank run at anywhere above zero, continuing: “I can’t say you can blame anybody. Even SVB when they’re assigning probability to bank runs and high-profile VCs telling all their companies to yank money from SVB, nowhere do you assign a probability that $42 billion is taken out within eight to 10 hours or whatever it was. This really is a confluence of events that nobody would have predicted.”
He added, “I do think it’s going to be interesting when we find out if any of the VCs that were actively telling people to withdraw their funding were also shorting at the same time, and what the legal ramifications are.”
It’s too late to minimize the fallout for companies indirectly linked to SVB, Cuban said, adding, “These are the types of situations where you hope the government comes in. I don’t call it a bailout and some people gave me a hard time for that, simply because I think there’s good assets and if you’re buying good assets and that solves a liquidity problem that’s not a bailout. That’s taking care of the liquidity side of the problem and your risk is the interest rate delta.”
Could more runs be on the way?
Signature Bank—which also operates in the tech industry—saw a similar rush over the weekend before being taken over by regulators. That others will follow is a “possibility,” said Cuban, though the ramifications may not be felt to the same extent.
“Other bank runs are a possibility,” he said. “Any of the low-insured deposit percentage banks—if the FDIC doesn’t communicate well on their advanced dividends and what the payouts and returns are going to be for the deposits, then all those other banks are at risk. I don’t think they have the concentration to generate a true bank run.”
Such chaos could present opportunities for those willing to pick through the scraps, he added. Drawing from comparisons with Amazon and Dell in 2000 and LiveNation in March 2020, Cuban said it was an opportunity to invest in good companies. Such options will only be available to a “select few,” he added, as details of SVB’s other businesses came to light this week.
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