by Artifact, the new personalized messaging app from Instagram co-founders, is another startup whose funding was stalled by the collapse of Silicon Valley Bank, and co-founder Kevin Systrom thinks Silicon Valley could be in for more trouble. The founder revealed in a recent interview that before the bank collapsed, the team owned 100% of Artifact’s funds at SVB. However, unlike many other startups hit by the banking crisis, Artifact’s co-founders were fortunate to be able to fund their startup themselves if needed, and planned to lend the company money to keep it afloat.
As it turns out, Artificat’s financial crisis was short-lived. Systrom tells us that after the government took control of SVB, Artifact has since recovered all funds and has had no more problems on that front.
The founder had previously shared Artifact’s SVB presence in a conversation with journalist Kara Swisher at SXSW, which was also featured on her podcast, On With Kara Swisher.
When asked about Artifact’s commitment, Systrom replied, “What’s 1% higher than 99%?” before confirming that yes, 100% of Artifact’s funds were locked up with the failed bank, which is now under the control of federal regulators stands. However, he added Artifact could have continued because it’s still small — just seven people — and because the co-founders had “enough personal liquidity” to figure out how to lend money to the company, he said.
Systrom also acknowledged in the interview the fortunate position he and Instagram co-founder Mike Krieger found themselves in regarding SVB’s failure and its impact on their new business.
“There are other companies with exactly the same percentage of lockdowns that not only have to pay the payslips but also have all these bills — and people don’t just have that money lying around. You can’t just throw it out,” Systrom said.
Still, the founder, like many other entrepreneurs, was caught off guard by the bank’s collapse, noting that although you anticipate many challenges when starting a new business, losing access to your capital is the “last on your list of expectations.” .”
He also hinted that the issue with the bank may be related to the herd mentality in Silicon Valley, adding that there was no conscious decision on his part to even work with SVB.
“As you find out in Silicon Valley — whether they’re wealth managers, accountants, or lawyers — there’s this herd mentality and nobody really wonders why they use what service they use. If you’re an entrepreneur, one of my lessons is “ask why” – do some due diligence. And I think that’s important because you never really know what you’re getting yourself into. But there’s a lot like, oh, so-and-so company uses X, Y or Z, we should use them,” he said. “And that creates problems in the long run.”
He went on to warn that the banking crisis is just an indication of the “bad things” to come for Silicon Valley’s tech ecosystem, noting that each crisis has been triggered by rising interest rates. And if a bank failed, there could have been cascading effects – for example, if one company cannot pay another, there is a risk of consequences.
“In my opinion, there’s always a good time in Silicon Valley to be really concerned about,” such as “when companies that you know are dumb ideas raise many tens of millions of dollars; when people throw excessive parties,” he said.
Systrom himself was just old enough to watch the Valley’s other boom-and-bust cycles from afar — in 2000 he was fresh out of high school and in 2008 he was fresh out of college.
“I saw both crises from afar. And the patterns just keep repeating themselves over and over again. But you realize that nobody cares. Because as long as you make money on the way up, it’s like Musical Chairs — if you can just find a seat before it all collapses, you’ll make lots of money and walk away and be happy,” called Systrom. “But it turns out. In the end there are many people without seats. And I think that’s devastating for the Bay Area in general, because it’s already dealing with huge wealth disparities.”
“My point is, it was very clear that the writing was on the wall – that bad things were going to happen… I think the SVB thing accounts for about 5 or 4 percent of the bad things that are going to happen,” he added .
Photo credit: artifact
The wide-ranging interview also touched on other topics, including Artifact’s ability to compete with Twitter, whether the US should ban TikTok, the state of crypto, what’s going on with Instagram today, and his approach to Artifact as a second-tier contractor – where he, among others is said to have learned and adapted from missteps in building Instagram.
On the latter, he reflected that the tech industry is very different today than it was when he started Instagram.
“I think the era where technology could just do whatever it wants is hopefully long gone because it’s important for people to think through the implications of what their business is going to do before it gets there,” he said Systrom.
He also noted that while he believed in the fundamentals of Web3 and crypto, he saw too much hype, people losing money and people manipulating the consumer.
“I think that’s why technology gets a bad rap,” he said.
On Instagram, Systrom lamented, “We’ve lost the soul of what made Instagram Instagram.”
“I used to be able to go ahead and see what my friends were doing and see what my family was doing. I think the problem is that there’s always an incentive to go to more commercialism, more developers, more deals, more advertising money.”
As for Twitter, Systrom believes the jury is still out.
“It’s unclear if the chaos will be positive chaos… Sometimes chaos breeds creativity, new products and new ways of thinking.” But, he added, whatever happens on Twitter won’t benefit Artifact because it’s about very different products.
He was also opposed to a total ban on TikTok in the US, but said it deserves a review. Finally, China does not allow our social networks like Facebook and Instagram.
“I don’t think it’s crazy to say we should really take a close look at this,” Systrom said of ByteDance’s own video app. “I don’t think we should ban it. But I think we should figure out how to run it independently in the United States. I think that’s a really smart plan.”
