How startups and scale-ups should rethink banking after the SVB disruption
The sudden disruption at Silicon Valley Bank (SVB) exposed how quickly a concentrated banking relationship can turn into an existential risk for startups and venture-backed companies.
Beyond headlines, the event created a lasting reminder: cash management and bank-selection deserve the same strategic thinking as product-market fit and hiring.
Practical steps to protect your company’s cash
– Know deposit insurance limits and structure accounts accordingly
FDIC insurance covers deposits up to the standard limit per depositor, per ownership category, at each insured bank. For many startups, a single operating account can exceed this threshold and leave funds effectively uninsured. Use multiple ownership categories and separate banks to maximize coverage, and document beneficiaries and ownership structures to ensure clarity.
– Diversify banking relationships
Keep operating funds spread across more than one institution. A simple multi-bank approach — one primary operating bank, one reserve account, and a separate payroll account — reduces single-point failures.
For larger treasuries, consider splitting balances across regional, national, and credit-union partners.
– Use sweep accounts, treasury services, and short-duration instruments
Automatic sweep services can move excess operating cash into money market funds, short-term Treasuries, or other low-duration vehicles overnight. These options often provide better liquidity and reduce interest-rate sensitivity compared with holding large balances in a single bank account.
– Manage interest-rate and duration risk
Banks that bought long-duration securities to lock in low rates can see unrealized losses when rates rise. As a treasurer, favor shorter-duration holdings for operational cash and include interest-rate scenarios in cash-flow stress tests. If you maintain sizable invested reserves, consider laddering maturities to reduce reinvestment and price risk.
– Keep a committed backstop
A pre-negotiated line of credit, even if unused, can be a lifesaver during a bank event. Explore venture debt, revolving credit facilities, or an arranged overdraft with a conservative covenant profile. Having a committed liquidity backstop preserves runway and avoids fire sales of assets.
– Strengthen governance and crisis playbooks
Board-level oversight of treasury policy matters. Maintain updated playbooks that define who can move funds, how to communicate with investors and employees, and technical details for accessing accounts remotely. Regularly rehearse scenarios like a bank outage or payment-processing disruption.
– Vet banking partners beyond rates
Evaluate banks for balance-sheet diversity, deposit concentration, and private-label risks. Ask about their liquidity sources, contingency funding plans, and client concentration. Smaller, specialized banks may offer excellent service but carry concentration risk; larger institutions provide scale but may lack startup specialization.
– Lean on expert advice and automation
Work with a treasury advisor or experienced CFO to design policies that reflect your runway, risk appetite, and growth plan.
Automation tools can centralize visibility across multiple accounts, enforce sweep rules, and provide real-time alerts — especially useful during volatile times.
The takeaway for founders and finance teams is straightforward: treat cash like the critical asset it is.
A deliberate, diversified approach to banking reduces operational fragility and preserves strategic optionality — letting teams focus on growth instead of contingency.