On Sunday night, founders and investors across the country exhaled upon learning they wouldn’t lose all their money in the SVB/Signature collapses. This news, coupled with JP Morgan stepping up to bankroll First Republic and SVB’s successor entity somehow being “open for business” already, put many of our minds at ease – at least temporarily.
After a whirlwind weekend, the past few days have somehow felt… Eerily normal? Many founders expected to be in crisis mode all week, but instead spent Monday asking a new question: what should we do now?
Below, we attempted to answer some of the most common questions we have fielded the past few days. If we didn’t hit your question, reach out directly and we’ll do our best to answer it!
Should we still change banks? It no longer seems essential to change banks, but most companies seem to be taking that route. Our view is that you should:
- Keep accounts open at two or more banks for diversification and flexibility purposes
- Minimize your own stress by avoiding banks/situations that seem uncertain or contribute to anxiety
- Do your best to make changes during calm times (not at the last minute) to minimize operational risks like missing a payroll run
If you care about SVB and want to support its revival, you can certainly keep your money there – as this thread details, SVB needs deposits to survive and the government backstop makes these deposits extremely safe. Given that the bank may still be closed/sold in the coming weeks, we do recommend (at the minimum) setting up an account at another bank so you have a place to move your money if needed.
Venture Debt with SVB or Signature
What if we have venture debt with SVB or Signature? If you have an active loan facility with either bank, you need to be more careful before withdrawing funds. We recommend the following:
- Don’t move any money out of these banks until you’ve spoken with your legal team. You don’t want to trip a loan covenant.
- Continue making payments on your debt as you normally would.
- If you expected to receive more debt financing from one of these banks (via a revolver, tranched credit facility, etc.), you may still get that capital – but you should look into backup options to be safe. The new CEO of SVB announced that they “are making new loans and fully honoring existing credit facilities”, which is encouraging.
Bank to Choose
Which bank should we choose? There are plenty of good options available. A few schools of thought:
- The biggest banks (Chase, Bank of America, Wells Fargo, Citi, etc.) seem to be the biggest winners so far. Seemingly every founder I talk to has a Chase appointment setup, or is trying to get one setup.
- The other “startup banks” (Mercury, Brex, FRB, etc.) have been quick to launch/promote products that offer enhanced security:
- Mercury Vault offers up to $3M FDIC insurance
- Brex upped its FDIC insurance limit to $2.25M
- First Republic Bank allegedly offers an “insured cash sweep” business account that is insured up to $100M
- Regional and local banks are another viable option. Founders everywhere are seeking guidance and security right now, so the customer service offered by your local bank just might feel like a hug from grandma. They still lack the size of Chase and the online/mobile experience of Brex, but they have plenty of appointments available this week and friendly people you can call directly if another panic ensues.
Impact on Operations
How might this impact ongoing operations? Minimally, if you follow the below steps:
- First, ensure payroll is covered. You should be able to wire funds from SVB or Signature to your payroll system to cover near-term needs. Once you have a new bank account funded, reconnect your payroll system to that account.
- Second, re-link any other payment systems to your new bank account. This includes:
- Credit card systems like Brex and Ramp
- Bill-pay systems like Bill.com
- Benefits providers (healthcare, 401k, etc.)
- Invoicing and collection systems like Stripe (B2B/enterprise companies: be sure to change the bank information on your invoice templates, too)
- Third, look at wires or transactions that were in process at the end of last week. In-process wires may have been canceled and returned to the sender, so you’ll need to stay on top of incoming customer payments as well as outgoing wires to ensure they are re-processed if need be.
- Finally, look through your last few bank statements. Identify charges that hit your account and reach out to the applicable counterparty to ensure future payments hit the proper (new) account.
Note: These operational changes can clog your to-do list and add to your anxiety. If you work with OpStart, we will handle all of this for you – reach out to our team to discuss next steps or visit our website learn more.
Should we be managing our cash more thoughtfully? Yes. This warrants a deeper dive and may result in a blog post soon, but for now here are a few recommendations that apply even in normal times:
- Maintain open accounts with two or more banks at all times. We talked to many founders who tried moving their money out of SVB on Thursday, but had no other place to put it (opening a new bank account can take several days). Don’t get stuck in that situation!
- Use one checking account for all your operating activities. Connect this account to your payroll system, credit cards, customer invoices, etc. so all normal operating revenues and expenses flow through it. Top that checking account up every month (this will help you keep a close pulse on burn), but keep the balance below $250k if possible.
- Keep your excess cash in an account that is both insured and interest-bearing. We generally recommend stashing at least ~2-3 months of operating cash (i.e., “burn”) in your checking account, and holding the rest in something like:
- Money market funds – look for FUNDS, not ACCOUNTS, as funds are insured
- Talk to your (new) bank to see what they can offer on this front. Be sure to push for guarantees, not sales pitches – ask about the insurance coverage on your funds, where they are custodied, how you can access them, etc.
Impact on Upcoming Series [Blank] Raise
How will this impact our upcoming Series [Blank] raise? This is a topic that VCs will surely be weighing in on directly, and their perspective is better than ours. Ask your investors for their input, and follow along in the twitter/blog-sphere to stay current.
The early consensus advice was to delay fundraising if you can afford to do so. Given the favorable developments discussed above, I’m not sure this still holds true. Investors remain nervous, and the market may cool off temporarily as we wait to see if more dominoes fall – but if the bleeding stops here, VCs will soon get back to business. There are real incentives (deal access and PR) to being an early mover in the return to normalcy, so stay ready in case VCs come roaring back as soon as next week. In short:
- If you haven’t started raising yet:
- Wait at least a week before you send cold emails, request intros, or announce that you’re raising. If the rest of this week goes well, you can probably proceed with caution.
- If you were raising before the SVB drama hit:
- Keep that momentum alive. Investors should have time to review diligence materials, schedule follow-up calls, and draft term sheets – they may delay an investment committee meeting, but they won’t let a good opportunity slip away.