The shockwaves from SVB’s collapse reshaped how startups, investors, and banks think about liquidity, concentration risk, and the fragile link between rapid growth and conservative banking practices.
For anyone connected to the innovation economy, the episode offers clear, practical lessons on protecting cash, managing relationships with financial partners, and anticipating regulatory shifts.
What went wrong — and why it mattered
SVB built a business around serving venture-backed companies and their investors. That focus created strengths — deep sector expertise and tailored services — but also a major vulnerability: a highly concentrated depositor base with similar cash cycles.
When shifts in interest rates made long-term securities held by the bank worth significantly less on paper, a liquidity mismatch emerged. As depositors withdrew funds quickly, the bank faced a classic run scenario compounded by unrealized losses and insufficient short-term funding options.
The result was a rapid loss of confidence that rippled across the tech and venture ecosystems.
Regulatory attention and industry impact
Regulators moved quickly to stabilize the situation, stepping in to protect insured deposits and maintain orderly access to client funds. That intervention prompted broader debate about supervision, stress testing for niche banks, and whether deposit insurance frameworks and contingency planning are adequate for institutions with unusually concentrated client bases. Banks that serve specialized industries are now under heightened scrutiny to demonstrate stronger liquidity management and risk diversification.
Practical lessons for founders and CFOs
For startups and growing companies, the SVB episode is a reminder that banking strategy is a core part of financial risk management.
Concrete steps to reduce vulnerability include:
– Diversify deposits: Spread cash across multiple banks to avoid exceeding insurance limits at any single institution.
Use multiple accounts or sweep services to keep balances within insured thresholds.
– Use short-term instruments: Consider money market funds, treasury bills, or laddered short-term securities to balance yield and liquidity.
– Maintain clear runway: Aim for a multi-month cash runway and update forecasts frequently.
Prioritize preserving liquidity over yield when runway is tight.
– Build banking relationships: Establish primary and backup banking partners, and maintain open lines of communication with lenders and investors for rapid support if needed.
– Leverage credit lines: Secure a committed line of credit or a bridge facility before a cash crunch, when terms are typically better.
What banks and investors should rethink
Banks that concentrated on a homogeneous client base need to reassess interest-rate sensitivity, duration risk in securities portfolios, and customer concentration limits. Investors and board members should push for stronger contingency planning, including stress tests that reflect rapid deposit flight scenarios and clear playbooks for accessing emergency liquidity.
Choosing the right banking partner
When picking a bank, evaluate its deposit mix, sources of funding, and demonstrated capacity for serving fast-growing companies.
Ask about liquidity contingency plans, the proportion of uninsured deposits, and access to short-term funding. It’s equally important to understand how quickly funds can be accessed and what protections exist for payroll and other critical disbursements.
The broader takeaway
SVB’s failure underscored the importance of aligning growth ambitions with conservative treasury practices. For founders, investors, and bankers alike, the event is a call to blend innovation with prudent financial hygiene: diversify, plan for stress, and keep liquidity front and center. Those who take these lessons to heart will be better positioned to weather future shocks in an unpredictable financial landscape.