Silicon Valley Bank: What the fallout means for startups, depositors, and treasury strategy
Silicon Valley Bank (SVB) became a focal point for startup banking and venture ecosystems. The events that surrounded the bank highlighted several persistent risks for any organization that relies heavily on a single financial partner. For founders, CFOs, and finance teams, the situation offers practical lessons for managing cash, choosing banking partners, and preparing for stress events that affect liquidity and reputation.
Why concentration matters
A defining issue was excessive concentration of uninsured deposits. Many startups kept cash balances well above the standard deposit insurance threshold, often with a single bank that specialized in serving venture-backed companies. When client confidence wavered, large uninsured exposures translated quickly into liquidity runs. Diversifying deposit placement helps reduce this vulnerability and increases resilience against institution-specific shocks.
Interest-rate and bond-portfolio risk
Another key takeaway relates to interest-rate risk in banking balance sheets. Rapid interest-rate shifts can erode the market value of long-duration securities held by banks. When institutions sell those securities to raise cash, losses crystallize and can stress capital positions. Treasury teams should evaluate not just the nominal yields on bank products, but also how a bank’s asset-liability mix could respond under stressed market conditions.
Practical cash-management steps for startups
– Spread cash across multiple insured accounts: Use several banks to keep individual balances within deposit insurance limits and reduce counterparty risk.
– Use sweep accounts and money-market funds: Programmatic sweeps into diversified short-term funds can improve safety while maintaining liquidity.
– Maintain a runway cushion: Target a conservative cash runway based on non-discretionary spend and worst-case revenue scenarios.
– Establish lines of credit: A committed credit facility, even if unused, provides optionality during sudden cash shocks.
– Centralize visibility: Real-time cash dashboards and regular stress tests help decision-makers act quickly when conditions change.
How to evaluate banking partners
Selecting a bank should factor in more than product pricing. Assessments should include the bank’s funding diversification, balance-sheet transparency, commercial lending policies, and contingency plans for liquidity events. Ask about uninsured-deposit support, wholesale funding exposure, and business-continuity procedures.
For venture-backed companies, confirm whether the bank’s client concentration could amplify risk in times of stress.
Regulatory and market responses
Regulatory reaction and market dynamics following the episode prompted broader conversations about deposit insurance, emergency liquidity tools, and supervision of mid-sized banks with high industry concentration. For corporate treasuries, staying informed about regulatory developments is important because reforms can change the safety landscape and influence where to place deposits.
Reputation and operational considerations
Bank failures can ripple beyond balance sheets.
Payment delays, lost signatory access, and increased due diligence can disrupt payroll, vendor relationships, and fundraising.
Contingency playbooks that specify alternative signatories, backup payment rails, and investor communications save time and reduce reputational harm.
A forward-looking approach
The SVB episode underscores the need for conservative, practical treasury practices that prioritize resilience over convenience. Diversify banking relationships, stress-test cash scenarios, secure backup liquidity, and maintain clear internal roles for crisis decision-making. These steps help startups and growing companies weather disturbances and focus on operational continuity and growth.