How SVB’s disruption changed startup banking — and what founders should do next
The disruption at Silicon Valley Bank proved a wake-up call for startups, venture firms, and corporate treasurers. It exposed common vulnerabilities—concentrated deposits, interest-rate sensitivity, and overreliance on a single banking relationship—and prompted a broader rethink of cash management and risk planning across the innovation economy. Here’s a practical guide to the lessons that matter and the steps teams can take to protect cash and maintain runway.
What went wrong (briefly)
Recent turmoil showed how quickly confidence can evaporate when a bank faces asset-liability stress.
Many technology companies and venture-backed startups kept the vast majority of their operating capital at one institution, often well above standard deposit insurance limits.
When rumors of trouble accelerated withdrawals, the pace of outflows overwhelmed normal liquidity buffers. The event highlighted two recurring risks: high uninsured deposit exposure and portfolio interest-rate risk tied to long-duration securities.
Practical steps founders and CFOs should take now
– Diversify banking relationships: Open operating accounts with multiple banks and spread deposits so no single institution holds the majority of your cash.
Multiple small accounts at different FDIC-insured banks is a simple way to increase coverage for cash balances.
– Know deposit insurance limits: Standard FDIC insurance covers deposits up to the established limit per depositor, per insured bank, per ownership category. If your cash routinely exceeds that amount, consider mechanisms that expand protection—such as using multiple banks, utilizing sweep accounts, or working with brokered deposit networks offered by payroll and treasury services.
– Use sweep and MMAs strategically: Automated sweep accounts and money market alternatives can reduce idle cash sitting uninsured in a single account while preserving liquidity.
Evaluate the counterparty and liquidity terms carefully.
– Shorten duration exposure: If your treasury holds long-duration bonds to chase yield, consider laddering maturities or shifting to shorter-duration instruments to reduce sensitivity to rate volatility. Liquidity priorities should outweigh marginal yield gains when runway is at stake.
– Maintain committed lines of credit: Establishing a committed credit facility—even a modest one—can provide a critical backstop during deposit runs.
Negotiate covenants and funding triggers with counsel and be transparent with lenders about your cash plan.
– Improve cash forecasting and stress testing: Build rolling 18–24 month cash models and run stress scenarios that simulate large, rapid outflows. Know how many months of runway you have at different burn rates and prepare contingency playbooks.
– Communicate early with stakeholders: Keep investors and board members informed about liquidity plans and contingencies.
Clear, proactive communication reduces panic and makes it easier to coordinate capital support if needed.
– Evaluate treasury tech and specialist partners: Treasury management platforms, corporate treasurers at banks, and third-party cash-management firms can simplify deposit distribution, sweep strategies, and multi-bank connectivity.
Wider implications to watch
Regulatory responses aimed at stabilizing confidence have prompted banks and policymakers to reassess deposit insurance frameworks and systemic oversight. Venture firms and fund managers are increasingly factoring bank counterparty risk into portfolio operations. Meanwhile, finance teams are institutionalizing stronger liquidity governance: vendor controls, escalation procedures, and regular treasury reporting to boards.
For fast-moving startups, the key takeaway is to treat cash like the most mission-critical asset. Diversify, stress-test, and put repeatable processes in place so liquidity decisions are deliberate rather than reactive. Those moves increase resilience and give founders more options when markets get volatile.