SVB failure: Lessons learned and a great resource loss for the startups
Silicon Valley Bank (SVB) failure news. Since last Thursday, we have all been awake trying to assess the situation; whether we can make payroll on Monday, what our next step is if it happens to our bank, and what else we need to do to have the cash to run the operations smoothly.
Pheronym does not bank with SVB, but we are still worried about how the SVB failure affects us. The first thing we did on Friday morning was to call our banker at First Republic Bank (FRB) to make sure that they had sufficient reserves for payroll to go through. Our banker assured us that FRB was financially sound and sent us documentation to support the claims. Then we started evaluating our situation and what we would do if FRB also failed. We already had a second bank account. We also have a line of credit that we keep open for emergencies.
Many are probably thinking, "Why did all these startups choose to work with SVB in the first place?", Were there not any other banks? Why did they put all of their money in one bank?". If I were them, I would have a better strategy to manage my startup's money. Maybe, maybe not!
A bank failure is not in the top 10 or 20 reasons why startups fail. Particularly, one that has been in business for 4 decades. In 2021, I met a representative from SVB through the Activate fellowship program. After talking to an SVB representative, I really liked how startup friendly the bank was. SVB was a great resource for startups and losing it will leave a huge gap in the startup ecosystem.
Believe it or not, it is not easy for startups to open up a bank account. Some banks just don't open accounts with startups. None provide credit cards. Some claim to work with startups, but the requirements and fees are so high that startups don't qualify or can't afford to open an account. There are a handful of banks that are friendly to emerging startups, including SVB. Except for a few very well-funded startups, it is difficult to maintain a required minimum balance in multiple different banks without paying penalties. In short, it is not easy to open and maintain multiple bank accounts for startups.
Changing the bank is not as easy. It is not just moving your funds from one bank to another. Different banks have different services, fees, wire transfers (domestic vs. international) policies, credit cards (may or may not provide credit cards), software that may or may not be compatible with your account software, and limits on how much you can withdraw. Routinely scheduled payments and deposits need to be updated with your new account information. Accounts receivable needs to be updated otherwise, you are not getting your funds. Finally, you have to update your account with IRS. This is not overnight work; if not planned, it can disrupt your business.
Lessons learned! Don’t panic! We are very grateful to the IndieBio accelerator for guiding us through this situation. We are informing our main investors of our status, working with our boards to get their feedback, and making the best decision together for the situation. Talk to our payroll providers since the payroll is deducted automatically from company bank accounts. Furthermore, we learned that deposits under $250K are insured by the Federal Deposit Insurance Corporation (FDIC). However, if the money is frozen for a period while the FDIC sorts things out, we should have a second bank account to which we have access to funds. We learned from our network a local bank that offers a no-cost business free-checking account with no monthly fees. We will talk to this bank to learn more about business accounts and limits on daily funds withdrawals, and rules on the notice for the withdrawals.
Currently, we do not know the full consequences of SVB's failure on the whole ecosystem. We will be monitoring the situation and communicating with our advisors, board, and investors to guide us through this financial crisis in the startup ecosystem.
Author: Dr. Fatma Kaplan is the CEO/CSO of Pheronym and Activate Berkeley Fellow & Berkeley Lab Affiliate Cyclotron Road Cohort 2021. She is also an entrepreneur and an accomplished scientist with experience in both biology and chemistry. She has a Ph.D. in Plant Molecular and Cellular Biology and postdoctoral training in Natural Product Chemistry with a focus on isolating biologically active compounds. Dr. Kaplan discovered the first sex pheromone of the nematode Caenorhabditis elegans and published it in Nature. Then she discovered that pheromones regulate other behaviors in both parasitic and beneficial nematodes. Dr. Kaplan conducted the first agricultural biocontrol experiment in Space at the International Space Station in 2020. She has very high-impact publications, and her dissertation (beta-amylase’s role during cold and heat shock) was cited in textbooks within 5 years of publication. Dr. Kaplan worked as a scientist at NASA, the National Magnetic Field Laboratory, and the US Department of Agriculture — Agricultural Research Service. Dr. Fatma Kaplan and Mr. Karl C. Schiller co-founded Pheronym to bring nematode pheromone technology to the market and to provide effective, non-toxic, sustainable pest control for farmers and gardeners.
