Mar 24, 2023, 3:11 PM ETInterview

Mike Maples: Lessons from SVB; Crisis Management Tips; USD's Status as the Reserve Currency | E993

The Western world has failed to maintain responsible stewardship of money, relying on printing currency as a reflexive solution to all problems.
Mike Moritz predicts that without greater fiscal responsibility, the US dollar will inevitably cease to be the global reserve currency.
A series of "unforced errors" by the Federal Reserve, including excessive money printing during the COVID crisis and subsequent rapid interest rate hikes, have created a cycle of inflation and banking instability.
Moritz anticipates the financial landscape will be more difficult by the end of 2023, with potential for further bank runs and crises driven by external shocks rather than market fundamentals.
There is a risk that capital will centralize back into the "Big Four" banks as a flight to safety, a trend Moritz views with concern but advises founders not to obsess over.

The most effective founders during the SVB crisis treated uncertainty as a variable to be mapped rather than an event to be feared.
Scenario planning involves creating a matrix of options against different uncertain outcomes (e.g., "get all money back," "get partial money," or "get no money").
Michael Gao of SmarterDX was cited as a prime example for explicitly modeling payroll obligations and potential cuts based on the specific timeline of fund recovery (one week vs. one month vs. no recovery).
Best practices involve leading the discussion as a business partner to the investors, presenting a sober list of choices rather than asking for a bailout.
Moritz notes that only a small fraction of his 100+ portfolio companies utilized rigorous scenario planning during the SVB event.

Founders should not attempt to become bond experts; the primary goal is to create the conditions for rapid movement of capital regardless of external circumstances.
A robust financial safety net requires maintaining accounts in at least three non-correlated banks (e.g., SVB, First Republic, and a "Big Four" bank).
Each account should ideally hold at least three months of runway to ensure liquidity if one institution fails.
Founders must pre-establish "rails" between accounts, including wiring instructions and authorized signatories, to enable immediate fund transfers without administrative delays.
The priority is resilience over yield optimization; the goal is to land on one's feet, not to maximize basis points on money market accounts.

Chris Lockhead's four-step crisis communication framework emphasizes: Over-communicate, Be Radically Transparent, Be Radically Human, and Keep Going.
Leaders must communicate frequently even when they lack full answers, avoiding "happy talk" or spin in favor of objective facts.
Radical transparency requires admitting what is known, what is unknown, and the specific steps being taken to resolve the unknowns.
Radical humanization involves acknowledging the fear and emotional stakes of employees and investors without "turning to mush" or losing leadership resolve.
Momentum is critical; leaders must explicitly communicate the need to maintain forward progress and avoid the energy drain of scapegoating or finger-pointing.
Moritz refutes the narrative that VCs caused the SVB bank run, noting that blaming VCs ignores the lack of transparency in bank balance sheets.

Multi-Stage Fund Dynamics: Moritz observes multi-stage funds retreating from pure seed investing due to the high capital requirements of larger funds and the difficulty of managing too many small seed relationships.
Signaling vs. Performance: Moritz agrees with Dave Tisch that "signaling" is often overrated; a company's ability to raise capital is driven primarily by product-market fit, though "orphaned" companies (partner churn) can face challenges despite performance.
AI Capital Intensity: The cost of starting AI companies has increased significantly ("Big T Technical Risk" combined with "Big M Market Risk") due to the need for mass compute and expensive engineering talent.
Risk Profile Shift: Unlike previous eras of "Lean Startup" (low technical risk, high market risk), AI requires massive capital to de-risk technology before proving market adoption.
Fund Deployment Pacing: Moritz argues for longer fund timelines (e.g., 5 years) to utilize time diversification, preventing the need to deploy capital at peak valuations during hot market cycles.
Reserve Allocation Strategy: Floodgate utilizes a 70/30 upfront-to-reserve split and assigns a dedicated partner to manage follow-on investing to ensure reserves are deployed aggressively into top performers rather than backstopping struggling companies.

Product-Market Fit (PMF): PMF is the singular priority for startups; if a company achieves true PMF, failure is highly unlikely regardless of other business functions.
Board Composition: Moritz is skeptical of mandatory board governance for seed-stage startups that lack product-market fit, viewing it as a distraction from the core mission of finding customers.
Decision Making Mistakes:
- Harry (Host): His biggest mistake was over-reliance on academic/numerical assessments, failing to account for geography, political regimes, and founder capability.
- Mike (Guest): His regret involved falling in love with a strategic idea without adequately diligencing the founder's ability to execute.
Board Tenure: Moritz warns against being on too many boards (e.g., 2011-2013), as it dilutes mental presence and slows the incorporation of new lessons.
Liquidity & LPs: LPs judge fund managers primarily on money creation; the failure to distribute liquidity during previous high points is a significant negative signal for future capital raises.