SVB Takeaways: What Founders Can Do Now
A non-exhaustive list on how startups can navigate the ripple effects of a historic bank failure
The word on the (Wall) street is that the time-honoured US system for driving innovation has been dealt a massive blow. Despite regulators stepping in to help SVB depositors, the chaos that led to the collapse of Silicon Valley Bank is far from over. The current state of affairs is that affected startups and founders have been given a lifeline - a promise from regulators that their businesses can continue and be “made whole” again. Concerns over a wider run on banks may have largely settled down.
However, SVB’s fall has come at an already challenging time for startups and investors, as well as innovation hubs around the world. In the context of uncertain market conditions, founders are also dealing with the double whammy of slowing venture capital funding and rising interest rates. The tech and Web3 sectors have considerably less cashflow than they once did. In the absence of SVB, the capacity to finance projects will be even more limited. With all these factors combined, the road to growth and innovation for startups could be bleak.
All eyes are now on a more long-term pressure facing the international system for financing innovation. Tech and Web3 startups could be hit the hardest because their industries are intrinsically risky in the first place, vulnerable to market shifts and sentiments. The question now is how can founders navigate through these new realities. Where do we go from here?
What founders - Web3 and Web2 alike - can do now:
1/ Show up to the office and get to work.
2/ Build a risk management team to outline a concrete plan on how to extend cash runway and survive for the next few months.
3/ Hire an experienced CFO or similar expert who understands the ins and outs of economic regulations. They should be able to track the health of your key financial partners.
4/ Send a memo briefing all your employees on the SVB situation and your next action plan.
5/ Contact your current investors. Update them on the latest situation and your current needs.
6/ Contact every potential investor you know. Work on this everyday.
7/ Reorganise your daily cash flow for the next month or so, including exact costs for payrolls, facilities, and equipment. Find ways to cut down in the short term so as to extend your runway.
8/ Open another bank account. From now on, put your money in at least two different banks. Avoid keeping more than 20% of your liquid assets in any one place. For crypto startups that are running out of bank options, check out this list. Or alternatively, work on #4.
9/ If a bank lender wants you to sign exclusivity clauses or covenants that require your company to hold all its money at the bank, negotiate the term. SVB included such clauses for some loans, prohibiting many tech startups to diversify where they kept their money.
10/ Outline how to defer cash for salaried employees, if needed. The founder or CEO should be the first in line to cut their payroll, followed by top executives.
11/ Start a list of every other possible way to get cash in your hands. Run relevant operations or activities on revenue from customers while building your products at the side.
Perhaps SVB’s collapse signals the time to rebuild a new structure for financing an innovation ecosystem. If Silicon Valley is not going to do so, founders will most likely have to look somewhere else. Let’s all be reminded again of a key point Satoshi has been trying to make since 2008: “The root problem with conventional currency is all the trust that's required to make it work.”