The collapse of Silicon Valley Bank would, at first blush, appear to have little to do with the ad industry. But Ashwini Karandikar, executive vice president of technology and data at the American Association of Advertising Agencies, believes many people are missing a key component of the story.
Marketing Daily spoke with Karandikar about the bank’s collapse and the likely effects on the ad industry. Below are excerpts of the conversation, edited for clarity and length.
Marketing Daily: How will the collapse of this bank affect the ad industry?
Ashwini Karandikar: Where we think this may have an effect is that Silicon Valley Bank was the preferred bank for pretty much every startup or every technology-based company out of Silicon Valley.
Marketing Daily: The main effect it has is on startups coming out of Silicon Valley, right?
Karandikar: The intersection between the people who bank with this bank and the advertising ecosystem seems to be within the startup community, but the bank’s [relationship with] Roku was public. And Roku is a pretty established company. It's not a startup anymore. They had a shortfall, but they also had money on hand to make up for the shortfall.
Marketing Daily: Is there anything comparable in recent history to the failure of this bank?
Karandikar: An example I can think of, and this is pretty old: When large advertisers go out of business, like when CompUSA or OfficeMax or any of these big companies that used to spend millions, suddenly declared bankruptcy or suddenly started closing out stores and they have significant media budgets, on the books with agencies – then going out of business but then declaring bankruptcy suddenly puts the pressure back on companies that they work with.
I was at a small boutique, which was eventually acquired by Dentsu USA, when CompUSA failed. I remember we had to take upwards of a million dollars in loss on our books because they couldn't pay. Obviously, we were not able to then pay the vendors who we had used. But that's because we had very strict sequential liability in place as well if we don't get paid.
Marketing Daily: Do you think the SVB collapse is going to change the way that people do business? Or is it a kind of very specific and localized effect?
Karandikar: Currently, it seems to be localized. Not by region specifically, but by the sector that was serviced by SVB. But I expect revisiting the contract to ensure that there's enough production and there's enough due diligence -- and there's only so much due diligence you can do. like I can insist on getting all bank records from Roku for example, and ask them to tell me exactly who the bank was and what this is.
There was no real way to predict that SVB would go out of business so quickly. And so I expect some sort of recalibration of the clauses. Long-term, though, I can't predict what will be right now.
Marketing Daily: Is there anything that agencies can learn going forward in the near term to avoid something like this in the future?
Karandikar: Well, there’s better due diligence of companies you're working with. What's the longevity of that company? How are they funded? And maybe insisting on sequential liability on both sides?
What is the "key component of the story" that many people are missing? Lede promises. Story does not deliver. Did you mean that key component to be Roku being an SVB customer and foolishly placed $487 million of cash at the bank? In any event, SVB was already bailed out by the US govt as of the time this story was posted. And, even if Roku were to fail, advertisers would not lose money, because they are as buyers who pay money TO Roku (a media company) not vice versa. So the comparison to a client going out of business, leaving unpaid media and agency bills, doesn't hold water. By the way, Office Max still is in business, so someone needs to check facts over there.