Silicon Valley Bank (SVB) became synonymous with startup banking — until a sudden loss of confidence exposed critical weaknesses that reshaped how founders, investors, and regulators approach risk. The episode highlighted a mix of business-model concentration, interest-rate sensitivity, and deposit concentration that together created a rapid destabilizing cycle. Understanding what happened and what to do next is essential for anyone managing corporate cash or overseeing financial institutions.
What went wrong
SVB’s strengths — deep relationships with venture-backed startups and venture capital firms — were also a key vulnerability.
A depositor base heavily concentrated in tech and life-science startups meant that when sector funding slowed, many clients began drawing down cash simultaneously. At the same time, the bank held a large portfolio of long-dated fixed-income securities whose market value declined as interest rates rose. That asset-liability mismatch left the bank exposed when liquidity needs surged, and public news accelerated withdrawals into a classic bank-run scenario.
Why it matters beyond one bank
The SVB episode underscored systemic issues that affect many corporate treasuries and regional banks: dependence on uninsured deposits, inadequate hedging for interest-rate risk, and the potential speed of modern bank runs fueled by instant communication.
Regulators and institution leaders took note, increasing scrutiny of liquidity practices, stress testing, and governance.
For startups and scaleups, the event acted as a wake-up call about where cash is parked and how banking relationships are structured.
Practical takeaways for startups and CFOs
– Diversify deposit relationships: Spread operating cash across multiple banks to reduce counterparty concentration risk and exposure to a single institution’s liquidity stress.
– Mind the insurance limits: FDIC insurance covers deposits up to a set threshold per depositor, per insured bank; amounts above that are exposed if a bank fails. Consider allocation strategies or custodial/treasury services that offer protection.
– Build a longer runway: Lock in runway through cost discipline and fundraising planning. More runway reduces the likelihood of emergency withdrawals that can create cascading problems.
– Use liquidity tools: Consider sweep accounts, money-market funds, short-dated government or agency securities, and laddered investments to balance yield and liquidity needs.
– Monitor bank financials and relationships: Stay alert to changes in a bank’s funding profile or business focus. Regularly review covenants, line-of-credit availability, and contingency plans.
What banks and regulators should prioritize
– Stronger liquidity management: Robust contingency funding plans and more conservative interest-rate risk hedging can reduce vulnerabilities.
– Concentration controls: Limits on depositor-sector concentration and stress-testing for rapid withdrawal scenarios are critical.
– Transparent communication: Clear, timely disclosure helps calm markets and prevents misinformation-driven runs.
– Governance and oversight: Boards and senior management must ensure risk-management frameworks match the institution’s business model and growth profile.
Looking ahead
The episode pushed the startup ecosystem to rethink treasury hygiene and diversified banking strategies — practical changes that improve resilience regardless of macro conditions. For banks, it accelerated focus on liquidity, interest-rate risk, and depositor concentration. The result is likely to be a more cautious, better-documented approach to corporate cash management that benefits both clients and the financial system.
Quick checklist for immediate action
– Split deposits across at least two banks
– Ensure at least several months of runway in liquid instruments
– Use FDIC-insured or treasury-backed vehicles for large balances
– Review and document contingency funding plans
– Talk to your bank about their liquidity and hedging practices
Protecting cash and managing relationships proactively turns a vulnerability into a competitive advantage. Whether you’re a founder, CFO, or bank executive, the focus should be on simple, practical steps that reduce single-point failure risk and increase operational resilience.