Silicon Valley Bank (SVB): What startups and treasurers should learn now
Silicon Valley Bank (SVB) became a flashpoint for founders, investors, and financial officers when its failure exposed specific vulnerabilities unique to niche banks serving high-growth sectors. The episode highlighted structural risks and practical steps companies can take to protect cash, preserve runway, and strengthen treasury practices.
Why SVB mattered
SVB was a specialized lender and deposit bank focused on technology startups, venture capital firms, and the innovation ecosystem. Its business model relied on deep relationships with fast-growing companies that tend to hold large, uninsured deposits and draw on lines of credit as they scale. Two forces combined to create severe strain: concentration of uninsured deposits and a balance sheet heavy in long-duration securities that lost market value when interest rates moved. A rapid run of withdrawals revealed liquidity gaps that capital buffers couldn’t absorb quickly enough.
Practical lessons for startups and growth companies
– Diversify banking relationships: Avoid keeping all operating cash at a single institution. Spread deposits across several banks and use insured sweep or custodial services to increase FDIC coverage.
– Know your deposit coverage: Understand what portion of deposits is FDIC-insured and consider insured cash sweep programs or treasury management platforms that distribute funds across multiple banks.
– Keep longer runway: Aim for a cash runway that allows flexibility in a disrupted banking environment—many finance leaders target several months of operating expenses as a minimum.
– Use credit lines prudently: Maintain access to committed credit (revolvers, lines of credit) from more than one lender.
Uncommitted facilities can be withdrawn in stress periods.
– Automate payroll and vendor payments: Set up processes that allow immediate fund transfers across accounts if you need to move payroll funds quickly.
– Maintain open communication with investors: VCs and board members can help coordinate emergency liquidity support or introductions to alternative banking partners.
What treasurers should review now
– Investment posture: Reassess duration risk in investment portfolios; long-duration securities can be volatile when rates shift. Consider laddering maturities to reduce market price sensitivity.
– Counterparty due diligence: Monitor bank balance sheets, concentration of deposits, and liquidity metrics. Smaller, niche banks can perform well in normal times but may carry higher tail risk.
– Stress testing: Incorporate bank-run scenarios into cash-flow stress tests. Model rapid withdrawal scenarios and the speed at which assets can be liquidated without triggering significant losses.
– Operational contingency planning: Document step-by-step procedures for moving funds, notifying staff, and executing emergency credit draws.
Choosing banking partners going forward
Look beyond headline brand and evaluate how a bank fits your business model. Important criteria include the bank’s deposit mix, liquidity sources, access to capital markets, risk-management practices, and customer-service responsiveness in crises. Institutions with diversified funding and robust liquidity buffers tend to be more resilient.
Reputation and regulatory change
High-profile banking failures signal that regulators and the market will pay more attention to niche banking risks. Expect continued focus on deposit concentration, liquidity management, and interest-rate risk at the regulatory level, which may affect how banks price services and manage capital.
For startups, VCs, and corporate treasuries, the SVB episode is a reminder that banking relationships are strategic.
Prudent diversification, strong cash governance, and realistic stress testing turn a potential vulnerability into a manageable operational risk.