What to Do in the Wake of The Fed Saving SVB’s Depositors
On Sunday night, March 12th, 2023 the Treasury Department, Federal Reserve and FDIC announced that they will fully protect all depositors who held funds in-and-above the FDIC limits at Silicon Valley Bank. Here is a link for more details directly from the source. Our view is that the government stepped in with these measures to quell fears that could cause contagion for ‘runs’ on any other banks that could be perceived as higher-risk. While many depositors with SVB may feel ‘out of the woods,’ we remain cautious in our outlook regarding the overall sector of startups and the impact last week had to access to the venture capital markets. We think that startup founders should continue to take defensive measures to shore up access to liquidity and set plans to reduce burn and increase runway. We believe these defensive measures are applicable to startup founders regardless of who they banked with as of last Friday, because the market impacts are likely to the broader asset class of venture.
We believe that our post on Saturday, March 11th, 2023 still holds relevance today. Some items remain urgent, others less so but are still important:
Urgent items include setting up a second bank account and adding diversity to your banking base. There is still uncertainty about the banking system in the wake of Friday, and the cost of opening a new account, plus instituting measures such as reverse ACH/wire or use of Insured Cash Sweep products are worth the risk reduction to do so.
Building a financial forecast model is still more important than ever. You need a tool that can help you navigate change, because if there’s anything we are certain of this year, it is continued uncertainty.
Some items such as furloughs, pay cuts, downsizing and vendor payment stalling may have less urgency than it did this weekend, but should continue to be planned as contingencies in the event that sales or bookings milestones do not meet expectations, or access to capital becomes more scarce.
Startups should continue to have regular discussions with their investor bases to get a clear understanding of any changes to goals and outcomes for 2023. We are hearing a change in tone from VC board members, shifting from ‘growth at all costs’ to ‘growth at the lowest capital requirements.’ Make sure that you and your board are on the same page on this, as a mismatch in expectations could lead to a future funding issue.
If you are a startup founder that is an existing client of Ballast, these are likely already items you’ve been discussing with your engagement team. If you are not a current Ballast client but need support and guidance on the above, we’re here to help.
