How startups should protect cash after the SVB disruption
The disruption at Silicon Valley Bank (SVB) changed how founders, CFOs, and treasurers think about cash management.
Startups learned that fast growth and concentrated deposits can create acute vulnerability when a primary banking partner faces stress.
Practical changes in treasury strategy can reduce risk and keep operations running through volatility.
Why the SVB event matters
SVB was a key banking hub for technology and life-science companies, so its troubles rippled through startup ecosystems and venture finance. The core lessons are simple: diversify counterparty risk, understand interest-rate and liquidity exposure, and have a clear contingency plan for payroll and vendor payments.
Actionable steps every startup should take
– Spread deposits across institutions
Keep cash at multiple banks so no single failure disrupts day-to-day operations. Use banks with strong corporate services, credit unions, or program banks that offer FDIC pass-through insurance via sweep networks to exceed individual deposit insurance limits.
– Know your FDIC exposure and limits
Regularly calculate how much of your cash is insured. If you hold concentrations above insurance caps, immediately explore insured sweep options or short-term low-risk investments to protect principal.
– Maintain committed backup lines of credit
A reliable line of credit—either from a bank or a VC-backed reserve—provides a liquidity buffer for payroll and emergency expenses.
Ensure draw terms are documented and accessible remotely.
– Use cash sweep and treasury management services
Automated sweep accounts, money market funds, and treasury management tools can reduce idle cash risk and improve yield while preserving liquidity. Compare fees, counterparty exposure, and redemption terms.
– Stress-test your cash runway frequently
Run scenarios for delayed funding rounds, major client payment delays, or temporary loss of banking access. Know the minimum runway that lets you survive worst-case scenarios and align spending accordingly.
– Keep payroll and vendor contingency plans ready
Have alternate payment rails in place—secondary payroll providers, multiple ACH origins, or prepaid arrangements—to avoid missed payroll if primary banking access is interrupted.
– Communicate with investors and vendors proactively
Transparent communication about liquidity mitigation steps builds trust with investors and partners. If a bank disruption impacts operations, early notice can prevent surprises and enable collaborative solutions.
– Assess banking counterparties for interest-rate risk and asset-liability mismatches
Look beyond convenience—evaluate how banks manage duration risk and the composition of their balance sheets.
Counterparty resilience matters as much as product fit.
What founders should avoid
Don’t keep all cash in a single relationship for the sake of convenience or negotiated perks.
Avoid complex short-term instruments unless you and your advisors fully understand liquidity and valuation mechanics.
And don’t rely solely on verbal promises—get backup credit and payment arrangements documented.
The broader outlook for startup banking
Banking partners and regulators are more focused on deposit concentration, liquidity, and interest-rate risk. That means startups can expect more options for insured sweeping, improved treasury products tailored to high-growth companies, and heightened diligence from banks onboarding venture-backed clients. Firms that adopt disciplined cash-management practices will be better positioned to weather future shocks and move quickly when opportunities arise.
Stability comes from preparation: diversify deposits, secure backup credit, stress-test runways, and keep payment contingencies in place. These steps turn a single banking disruption into a manageable operational hiccup rather than an existential threat.