Silicon Valley Bank (SVB) reshaped the conversation about startup banking, risk management, and regulatory oversight. The bank’s abrupt distress and subsequent industry ripple effects highlighted vulnerabilities that founders, finance leaders, and investors can no longer afford to ignore. Here’s a practical guide to the lessons, actions, and opportunities that followed.
Why SVB matters
SVB was a central banking partner for many technology companies, venture capital firms, and startups. Because a large share of its deposits came from a concentrated, highly interconnected customer base, the bank’s troubles quickly became a system-wide concern. The episode underscored how liquidity, interest-rate risk, and depositor concentration can combine to create rapid instability.
Key lessons for startups and scaleups
– Diversify deposit exposure: Relying on a single bank leaves payroll and operations vulnerable. Split cash across multiple banks and consider using sweep accounts or cash management platforms that spread funds among several insured institutions.
– Understand deposit insurance limits: Know the protections offered by deposit insurance and what portion of your cash balances may be uninsured. Structure accounts and entity ownership to maximize coverage where possible.
– Prioritize liquidity runway, not headline valuations: In stressed markets, the ability to cover payroll and critical expenses is the most valuable metric. Maintain conservative burn guidance and plan for downside scenarios.
– Use hedging thoughtfully: Interest-rate and duration risks matter for treasuries and longer-term securities. If your treasury holds significant longer-dated instruments, evaluate interest-rate exposure and consider laddering or professional advice to mitigate duration risk.
Banking relationships and treasury best practices
– Treat your bank as a strategic partner: Establish multiple lines of communication, regular liquidity reviews, and contingency plans. Conduct regular health checks on your banking counterparties.
– Automate cash forecasts: Daily or weekly cash flow forecasts help spot shortfalls early and support quick decision-making. Use tools that integrate with payroll, AR/AP, and investor funding schedules.
– Maintain a contingency liquidity buffer: Keep a multi-month payroll buffer in easily accessible accounts, ideally across insured institutions or diversified instruments.
Alternative financing and capital options
When traditional bank lines tighten, startups may need alternatives: venture debt from non-bank lenders, committed credit facilities from diversified lenders, or lines from fintechs. Each has trade-offs—cost, covenants, and speed—so weigh them against operational needs. Equity raises remain an option but can be dilutionary and time-consuming; treat them as part of a broader liquidity playbook, not a sole fallback.
Regulatory and market shifts to watch
Regulators and financial institutions are adapting to reduce the chance of a repeat event. Expect heightened focus on liquidity stress testing, concentration risk limits, and more transparent disclosures from banks with concentrated depositor bases. This environment may also create opportunities for regional banks and specialized treasury platforms to win business from underserved startups.
Action checklist for founders and CFOs
– Split operating cash across multiple insured banks
– Run rolling 13-week cash forecasts and scenario tests
– Reassess exposure to longer-term securities and duration risk
– Document a formal contingency funding plan and test it with leadership
– Keep investors informed about liquidity posture and planned actions
The broader takeaway
The episode made clear that strong treasury discipline and diversified banking relationships are core components of company resilience. Teams that institutionalize prudent cash practices and maintain transparent communication with stakeholders will be better positioned to navigate volatility and seize opportunities as markets evolve. For tailored decisions, consult trusted financial and legal advisors to align strategy with your company’s specific needs.