Why the SVB episode still matters — and what founders, CFOs and banks should do now
Silicon Valley Bank (SVB) became shorthand for how a highly specialized bank model can unravel when interest-rate risk, asset concentration and a narrow depositor base interact. The events that followed created a shock to the tech and startup ecosystem and left important lessons for anyone managing corporate cash or running a financial institution.
What went wrong, in simple terms
SVB grew by serving startups, venture capital firms and the broader innovation economy. That business model concentrated deposits from a small, connected community. When interest rates rose after a period of low rates, the market value of long-duration securities dropped.
At the same time, many depositors needed cash to cover burn and payroll, triggering rapid withdrawals. The combination of unrealized losses on the bond book and a sudden funding squeeze created a classic liquidity crisis. Regulators stepped in to stabilize the situation and later facilitated a transition of assets to another bank, while measures were taken to protect depositors beyond standard insurance limits.
Practical takeaways for startups and investors
– Diversify deposit relationships: Keep cash across multiple banking partners rather than centralizing all operating funds in one institution. This reduces single-counterparty risk.
– Use insured solutions and sweeps: Consider FDIC-insured sweep accounts, brokered deposit programs, or cash management platforms that spread balances across banks. Understand product terms and any fees.
– Improve treasury discipline: Maintain runway and contingency liquidity that isn’t tied to immediate fundraising. Build conservative cash-flow forecasts and avoid just-in-time payroll funding.
– Understand your bank’s risk profile: Ask about a bank’s asset-liability management, duration of securities, liquidity coverage and how they hedge interest-rate exposure. Institutional clients can and should demand transparency.
– Keep investors and employees informed: A clear communication plan for funding milestones and payroll contingencies reduces panic and helps preserve trust.
What banks and regulators learned
– Concentration risk is real: A customer base concentrated in one sector can amplify withdrawals simultaneously; banks need limits and diversification strategies.
– Interest-rate risk requires active management: Holding long-duration securities without effective hedges can create large unrealized losses when rates change. Robust stress testing against rate shocks is essential.
– Liquidity buffers matter: Higher-quality, readily available liquidity and contingency funding plans reduce the chance of a liquidity spiral.
– Supervision evolves: Regulators are likely to scrutinize banks with similar business models more closely and may adjust supervision to capture sectoral concentration and maturity mismatches.
Broader ecosystem effects
The event prompted treasury teams to take cash management more seriously: fintechs offering insured sweep services and treasury-as-a-service providers saw increased demand. Venture firms encouraged portfolio companies to tighten runway and diversify banking relationships. Banks that provide specialized services to innovation clients re-evaluated their balance-sheet strategies.
Actionable next steps
Founders and CFOs should perform a cash-mapping exercise, diversify deposits, and review banking contracts and contingency plans. Banks should revisit liquidity, funding diversity and interest-rate hedging. For both sides, open conversations about risk and preparedness reduce the odds of repeat surprises and strengthen the resilience of the broader innovation economy.
