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…