What founders, finance teams, and investors should learn from the SVB disruption
The recent disruption at Silicon Valley Bank put a spotlight on an often-overlooked vulnerability for startups: concentrated banking relationships and liquidity risk.
For fast-growing companies that keep payroll, reserves, and venture proceeds at a single institution, a banking shock can translate into an existential funding crisis.
The lessons from that episode are practical, immediate, and applicable to companies of every size.
Why SVB mattered for startups
Silicon Valley Bank had deep ties to the innovation ecosystem, making it a primary banking partner for many venture-backed companies. That close alignment amplified the impact when deposit flight and balance-sheet pressures emerged. The episode illustrated three core vulnerabilities:
– Concentration risk: holding all operating cash at one institution concentrates counterparty risk.
– Uninsured deposits: many startups held amounts well above standard deposit insurance limits, exposing them when access to funds became uncertain.
– Asset–liability mismatch: banks with long-term, rate-sensitive investments funded by short-term deposits risk significant mark-to-market losses when rates move.
Practical steps to strengthen cash resilience
Take action now to reduce single-point-of-failure risk and increase optionality if markets tighten again.
1. Diversify deposit exposure
Spread cash across multiple FDIC-insured banks and make use of corporate sweep accounts or deposit placement networks that distribute funds while preserving insurance coverage. Avoid keeping operating cash concentrated above insurance limits.
2. Use short-duration, liquid instruments
Allocate a portion of excess cash to short-dated Treasury bills, government money market funds, or other highly liquid alternatives. These options typically offer balance between safety and yield while preserving quick access.
3. Secure committed lines of credit
Maintain an evergreen credit facility or undrawn revolver sized to cover near-term obligations. Lenders often require covenants, so negotiate reasonable terms while your balance sheet is strong.
4. Tighten cash forecasting and stress tests
Run weekly cash roll-forwards and scenario tests for sudden revenue slowdowns, delayed financing, or payment disruptions. Build a conservative “minimum runway” threshold that triggers predetermined actions.
5. Standardize treasury controls and reporting
Implement centralized cash visibility and approval workflows. Daily bank reconciliations and consolidated reporting reduce surprises and speed decisions.
6.
Communicate proactively with stakeholders
Inform board members and lead investors about liquidity position and contingency plans. In tight environments, clear communication can prompt bridge financing or strategic support.
Questions to ask your banking partners
– What are your deposit insurance practices and sweep options?
– How quickly can large wire requests be processed during market stress?
– Do you offer committed credit lines and what covenants apply?
– Can you provide references from companies in our sector?
Longer-term governance changes
Boards and CFOs should codify treasury policies that set diversification rules, minimum liquidity targets, and approval thresholds for moving funds. Regularly review bank counterparties, credit exposures, and the impact of macro interest-rate shifts on institutional partners.
The broader takeaway
The SVB episode reminded innovators that banking choices are a strategic decision, not an administrative detail.
By diversifying deposit exposure, strengthening liquidity tools, and improving cash discipline, companies can protect runway and preserve optionality through volatile markets. Those who put robust treasury practices in place now will be better positioned to weather turbulence and seize opportunities when they arise.