Silicon Valley Bank (SVB) shook the tech and startup ecosystem when its distress became headline news. Beyond the dramatic events, there are long-lasting lessons for founders, CFOs, and investors about cash management, banking relationships, and operational resilience. Here’s a practical guide that turns the headlines into actionable steps for protecting your company’s liquidity and reputation.
What went wrong — and why it matters
SVB’s business model was highly concentrated: a large share of deposits came from startups and venture firms, while asset management leaned heavily into longer-duration securities.
That mismatch left the bank vulnerable when depositors needed quick access to cash. Rapid withdrawals, amplified by social media and tight cash conditions in the startup market, produced liquidity pressure that regulators had to address to preserve confidence.
Key takeaways for startups and growth companies
– Diversify deposit relationships: Relying on a single bank creates single-point-of-failure risk.
Open accounts with multiple institutions and consider splitting operating funds across FDIC insurance limits or using sweep accounts that spread funds automatically.
– Treat cash runway as mission-critical: Maintain conservative runway assumptions and run stress tests for sudden revenue drops or payment delays.
Aim for multiple months of runway to give your team room to adapt.
– Use short-duration, liquid instruments: Keep excess cash in insured accounts, Treasury bills, or money market funds that offer quick liquidity.
Avoid overexposure to long-term, illiquid positions for operating reserves.
– Formalize treasury practices: Establish written treasury policies covering approval limits, counterparty exposure, and minimum liquidity targets. Regularly review these policies with your board or finance committee.
– Communicate proactively with stakeholders: Have a plan for communicating with employees, investors, and vendors during banking disruptions. Clear messaging reduces panic and demonstrates control.
Practical banking and treasury tactics
– Spread deposits across institutions and products to stay within insurance thresholds.
Automated tools and sweep features can help manage this without adding operational overhead.
– Build a secondary banking relationship before you need it. New accounts can take time to onboard during periods of industry stress.
– Consider non-bank payment providers or payroll platforms as contingency options, but vet their solvency and service continuity.
– Revisit debt covenants and lender relationships. Ensure access to backup credit lines and understand drawdown procedures.
Broader implications for investors and the ecosystem
The SVB episode intensified scrutiny on banks with concentrated client bases and on the interactions between financial institutions, startups, and social channels. Investors are likely to emphasize operational diligence in financing rounds, including how companies handle deposits and counterparty risk.
For VCs, liquidity support plans and clear operational expectations for portfolio companies have become priority discussion points.
Reputation and regulatory considerations
Bank stress highlights the importance of reputation management.
Rapid, transparent communication and a clear plan of action can preserve trust with customers and partners. Regulators have signaled heightened focus on liquidity and risk management at banks that serve niche industries, so expect ongoing attention to governance and oversight practices.
Action checklist
– Open a second bank account and set minimum balance split rules.
– Implement a formal treasury policy and run monthly liquidity stress tests.
– Move idle cash into liquid, low-risk instruments within your risk tolerance.
– Establish communication templates for stakeholders and rehearse the response.
Turning a crisis into resilience means adopting conservative financial practices and building redundancy into banking and treasury operations. These steps safeguard day-to-day operations and position companies to take advantage of opportunities when markets normalize.