The Aftermath of SVB: How Our Founder Community Came Together for Support and Insights
Founders and funders, caught in a black-swan-like event over the past week, got a quick and painful education on the US banking system and how vulnerable we really are.
Wow, what a week!
As we all reflect on the last week, here are few learnings we’ve aggregated from across our community of 500 founders and operators:
The importance of liquidity: Raising funds is important, but so too is safeguarding those funds and doing so with minimal complexity. Having three months of runway in FDIC-insured, liquid accounts is vital. Beyond three months of immediate cash needs consider how to spread them across custodians, accounts, and account types. Moreover, make sure these accounts are connected with streamlined wiring processes, so you’re not left verifying micro transactions when it’s truly urgent to move funds.
Diversification of asset custodians: Make sure you diversify across not just accounts, but actual asset custodians. For example you might have a money market account, but if it sits at the same bank in which you have your checking or savings account, this money market account might actually still sit on their balance sheet and be subject to their solvency. Some banks custodian assets with others like BlackRock or Fidelity. By diversifying across companies you’re subject to less single counterparty risk. Additionally the liquidity laws for custodians are different than they are for banks who can often leverage deposits to varying degrees to provide loans, and buy Treasuries.
Staying calm while taking swift action: While there’s no need to panic, we did all learn the lessons of platform over-reliance and concentration. We are fortunate to have strong communication channels and community, but having the information is step one, taking decisive action with that information is something of equal or greater importance.
Here are some insights, reflections, and press from our founder community:
Tifany Dufu, Founder & CEO of The Cru on NPR:
“In my case, 1 in 4 women have considered leaving their jobs in the past year. And we partner with their employers to try to ensure that they have access to the resources that they need and the peer coaching they need to be successful. And so I'm working hard every day. I have investors. I have venture capitalists who have invested in The Cru, but we are not doing this for the big bucks. We have families. We have food that we need to put on the table. And particularly because we have team members, we have employees who work hard every day for our companies, it was incredibly stressful to not be able to potentially meet payroll. That is the biggest expense for an early-stage startup.”
Fran Brzyski, Co-Founder & CEO of Hark in the Wall Street Journal:
Fran had been using SVB as the primary banking account for his startup Hark Technologies Inc. He said he had been a happy customer but on Thursday, after seeing news circulating about SVB’s problems, decided to move most of the money to an account he had with Under Technologies Inc., which does business as Rho Technologies. He originally opened the Rho account upon the advice of one of his investors who had suggested he diversify where he holds the startup’s funds.
Kelsey Hunter, Founder and CEO of Paloma:
“We’ve done a lot to ensure a strong cash position this year. With both a team and a customer base of independent business owners depending on payouts, the impact of this situation would have been significant. I wasn’t willing to wait and see what would happen. As the markets opened Thursday and challenges at SVB became clear, I made the decision to clear out our SVB account – where we have banked for over 5 years – and I’m happy to have made that call. Ultimately this process has shown the strength of our board, with the support and speed of Geri Kirilova (Laconia Capital) making sure we could do what was needed, and has outlined opportunities to optimize our financial management, which I’m grateful for.”
Scott Hartley, Co-Founder and Managing Partner of The Fund
Scott spoke on China Global Television Network and China Radio International about the international impact of the SVB shut down, from foreign funds and startup’s ability to access US banking via SVB to the impact on global employee bases had uninsured deposits not been covered by the FDIC. The globalization of tech led to international capital inflows to the largest VC funds which then invested into startups, fifty percent of whom banked with SVB, so the impact of SVB’s failure had global ramifications.
Jenny Fielding, Co-Founder and Managing Partner of The Fund on Bloomberg TV
Jenny made an appearance on Bloomberg TV and spoke to the importance of effective communication during times of crisis. “We saw in the waves of lay-offs that when there is not good communication, things really go awry. Our founders are speaking with their employees, being proactive and showing their leadership skills during this stressful time.’’
Casey Powers, CEO of Climb Credit:
“I definitely learned these lessons the hard way this past week. Climb has a venture debt facility with SVB and kept 100% of its cash there pursuant to the requirements of that loan agreement. Looking back, I would have negotiated for the right to diversify banking but this wasn’t even something that crossed my mind at the time. I’m grateful that the FDIC stepped in to help the entire ecosystem of small businesses that were in a worse position. Also - The Fund’s Slack space was my saving grace throughout the past week - in fact, that’s where I first learned of the crisis and that information allowed me to move quickly. Our company is now navigating the difficult decisions around diversifying our corporate funds, maintaining compliance on our loan agreement and standing up an entirely new A/R and A/P process for a fairly complex financial operation (we are a lending company).”
Ari Newman, Venture Partner at The Fund Rockies in Bloomberg:
Ari talked to Bloomberg about how some VCs are supporting funding gaps during this crisis. “Some deep-pocketed firms, including General Catalyst and Khosla Ventures, offered to help portfolio companies cover payroll. Ari Newman, co-founder of Massive Capital Partners, was “dialing for dollars” to help his portfolio companies find the funds to make payroll. On Sunday evening, after the government's announcement, he said he had no regrets. “I did the right thing to protect and support my portfolio and I’d do it again,” Newman said.
TOMORROW! Join Jenny Fielding and Sherveen Mashayekhi for a fireside chat about the implications of Silicon Valley Bank’s closure on the wider tech ecosystem. Register here!
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