Silicon Valley Bank: Practical lessons for startups, investors, and treasury teams
The upheaval around Silicon Valley Bank exposed how quickly concentrated banking relationships and rising interest rates can create systemic strain for companies that rely on a single financial partner. Beyond headlines, the situation offers practical lessons for startups, venture investors, and corporate treasuries aiming to strengthen cash resilience and reduce concentration risk.
What went wrong — at a glance
The bank served a dense cluster of tech and life-science companies with large, uninsured deposits.
When interest rates climbed and bond portfolios lost value, liquidity stress intensified and a rapid withdrawal of deposits followed. The result was a liquidity mismatch: long-duration assets funded by short-term deposits. That combination created a sudden solvency crisis despite the bank’s historic specialization in the innovation sector.
Key lessons for companies and investors
– Diversify banking relationships: Relying on a single bank increases operational and counterparty risk.
Maintain primary and secondary banking relationships, and consider distributing operating cash across multiple institutions to stay within deposit insurance limits.
– Understand deposit insurance and protections: FDIC insurance covers deposits up to the insured limit per depositor, per institution.
For balances above that, plan alternatives such as multiple banks, custodial accounts, or properly structured sweep programs to reduce uninsured exposure.
– Prioritize liquidity management: Build clear cash runway models and stress-test scenarios for rapid outflows, delayed revenue, or slower fundraising. Maintain an emergency buffer and formalize decision thresholds for cost cuts or fundraising triggers.
– Hedge interest-rate and duration risk: Treasury teams should be aware that long-duration securities can lose value when rates rise. Consider laddering short-term instruments or using liquid instruments such as Treasury bills and high-quality money market funds to preserve principal and liquidity.
– Keep credit lines ready and relationships warm: Revolving credit facilities and lines of credit can be lifesaving. Maintain strong lender relationships and keep covenants and reporting current so facilities remain available when needed.
– Strengthen board and VC communication: Transparent, timely communication with investors and board members helps coordinate responses during bank stress, from lending support to facilitating alternative banking solutions.
Practical steps to safeguard cash
1. Map exposures: Create a live register of where cash is held, maturity schedules, and insured vs uninsured balances.
Update it weekly during volatile periods.
2. Use sweep accounts and MMFs wisely: Overnight sweeps to money market funds or Treasury-only funds can improve liquidity. Understand the credit and liquidity characteristics; these vehicles differ from FDIC insurance.
3. Implement a contingency playbook: Define who has authority to move funds, open new accounts, or negotiate credit quickly.
Run tabletop drills to test the playbook.
4. Re-evaluate treasury tech: Modern treasury management systems and cash-visibility tools reduce manual errors and accelerate decision-making during crises.
Regulatory and market shifts to watch
Regulators and banks are placing renewed emphasis on interest-rate risk management, liquidity stress testing, and deposit concentration. Expect lenders and banking partners to ask more detailed questions about deposit sources and stress tests before extending credit or waiving covenants. Startups and investors should prepare for more rigorous due diligence on treasury practices.
A resilient approach to banking
Silicon Valley Bank’s disruption was a reminder that fast growth and niche banking models carry inherent risks. By diversifying banking partners, tightening liquidity controls, and making contingency plans standard practice, companies can manage the unpredictable nature of markets while keeping focus on growth and product execution.