The shock around Silicon Valley Bank highlighted how quickly concentrated banking relationships and interest-rate risk can threaten even well-capitalized tech companies and venture firms.
For founders, CFOs, and investors, the episode reshaped how cash is managed and how banking partners are chosen. Here are practical lessons and tactical moves to reduce exposure and strengthen liquidity posture.
Why SVB mattered
Silicon Valley Bank was a central node for startups, VCs, and the innovation economy.
Its distress exposed two core vulnerabilities: heavy customer concentration at one institution, and the mismatch between long-duration bond holdings and a sudden need for deposit liquidity. The result was rapid contagion that prompted emergency measures from regulators and accelerated changes in marketplace behavior.
Key lessons for startups and funds
– Diversify banking relationships. Relying on a single bank for payroll, receivables, payroll cards, and credit lines creates single-point failure risk.
Open accounts at multiple institutions and designate a secondary bank for payroll and vendor payments.
– Treat cash management as a strategic function. Regularly stress-test runway under different funding and revenue scenarios. Factor in the time needed to move large deposits across banks and liquidate investments.
– Understand bank asset-liability profiles. Ask banking partners about how they invest deposits and how they manage interest-rate and duration risk. Demand transparency on contingency liquidity plans.
– Preserve ready access to credit.
A committed line of credit or diversified short-term financing options can bridge temporary liquidity stress and avoid forced asset sales.
Practical treasury tactics
– Use FDIC coverage tools. Explore services like certificate-of-deposit placement and insured cash-sweep programs that spread deposits across multiple banks to exceed single-bank FDIC limits.
– Employ sweep accounts and low-risk short-duration instruments.
Treasury bills, government money market funds, and short-duration ETFs can offer liquidity with minimal credit exposure when structured for quick access.
– Ladder securities with liquidity in mind. Stagger maturities to avoid concentration at one point on the curve and to create reliable cash inflows.
– Automate cash visibility and transfers. Reconcile balances daily, set triggers for rebalancing, and automate transfers to secondary accounts to reduce reliance on manual intervention during a crisis.
Selecting safer banking partners
– Favor diversified, well-capitalized institutions with conservative balance-sheet practices and transparent risk management.
– Negotiate operational terms up front: electronic transfer limits, multiple signers for large transfers, and explicit procedures for emergency access to funds.
– Consider fintech cash-management platforms and treasury-as-a-service providers, but vet their clearing partners and insurance protections.
Market and regulatory implications
The fallout prompted closer regulatory scrutiny of mid-sized banks, renewed focus on interest-rate risk and liquidity management, and changes in how institutional depositors structure their cash. Corporates and investors are more likely to demand stronger contingency planning and clearer disclosures from their banking partners.
Actionable next steps
1. Run a 90- to 180-day liquidity stress test and identify single points of failure.
2. Open a secondary operating account and set up automated sweeps or transfers.
3. Review FDIC-insurance strategies with your bank or a treasury advisor.
4. Secure or refresh committed credit lines sized to cover payroll and essential vendors for at least one funding cycle.
Protecting cash is now a strategic priority for startups and funds. By diversifying banking relationships, improving cash visibility, and adopting short-duration liquidity instruments, companies can reduce concentration risk and be prepared for unexpected shocks.
