When a major bank that specialized in serving startups and venture firms faltered, the ripple effects forced founders, finance teams, and investors to rethink how they manage cash and banking relationships. The episode exposed common vulnerabilities—deposit concentration, interest-rate sensitivity, and operational dependency on a single banking partner—and sparked a set of practical lessons that are still relevant for companies navigating fast-moving markets.
Why the disruption mattered
Startups often cluster deposits at one bank that knows the ecosystem well. That convenience can turn into concentration risk: payroll, customer receipts, venture funds, and lines of credit all tied to the same institution. When access to those funds became uncertain, many companies faced immediate liquidity stress, payroll risk, and operational headaches. The situation highlighted that banking choice is a strategic, not purely administrative, decision.
Actionable treasury practices for startups and VCs
– Diversify deposit relationships: Spread operating cash across several FDIC-insured banks to avoid having more than the insurance limit at a single institution.
Consider banks of different sizes and profiles to reduce correlated risk.
– Use insured sweep services and brokered deposit programs: Tools such as insured cash sweep (ICS) let companies retain liquidity while enjoying broader insurance coverage by distributing balances across partner banks.
– Short-duration liquid instruments: Hold a portion of reserves in short-term Treasury bills, government money market funds, or high-quality commercial paper to preserve principal and liquidity while earning modest returns.
– Maintain a contingency playbook: Create and rehearse a plan for rapid fund movement, key signatory access, payroll contingencies, and stakeholder communications. Clear escalation paths help CFOs act quickly under stress.
– Secure committed lines of credit: A standby credit facility or committed revolver can provide an immediate liquidity buffer. Make sure covenants and draw mechanics are well understood.
– Regular stress testing and scenario planning: Model cash burn under restricted access scenarios, and test operational steps like opening new accounts and wiring funds to alternative banks.
– Strengthen governance: Boards and audit committees should receive regular updates on cash strategy, counterparty exposure, and liquidity risk tolerance.
Operational and vendor considerations
Payment rails, payroll providers, and merchant processors matter. Confirm that critical vendors have resilient banking arrangements and alternative routing options. Consider splitting payroll across vendors or requiring dual-signature approvals for large transfers to reduce fraud and operational risk.
What investors and VCs can do
Investors can help portfolio companies by encouraging diversified banking, offering bridge capital when necessary, and connecting startups to cash-management expertise.
Due diligence on potential portfolio companies should include a look at treasury practices and contingency readiness.
Regulatory and market takeaways
Policymakers and regulators moved to shore up confidence and later emphasized supervision of interest-rate and liquidity risks among banks. For market participants, the broader lesson is clear: the operational realities of banking are integral to business resilience, especially for firms with concentrated profiles or rapid cash-flow swings.
Focusing on these practices—diversified banking, liquid short-term holdings, contingency planning, and stronger governance—helps startups and investors reduce concentration risk and maintain operational continuity when markets get turbulent. Robust treasury hygiene is now a core part of business resilience, not an optional back-office task.