Mitigating financial risk as a startup - a few tips from our founder, Nenad Marovac, following the collapse of SVB

Hey All,?

So if the startup world was not difficult enough already, in the last weeks we all got tested with the possibility that the funds which we raised to fund our business could have been wiped out due to the failure of Silicon Valley Bank (SVB) and other banks.?As other VCs, we spent that weekend speaking to our portfolio companies and our own Finance Director,? John Horton , to assess the potential damage of the effects of the failure.?

Luckily, thanks to the thoughtful and quick response of the UK government led by Rishi Sunak and the US Federal Deposit Insurance Corporation (FDIC) , all of our portfolio companies as well as our own funds are safe.?

However, as we did our due diligence and spoke to other VCs and founders we found out that many companies, including some of our own, had held?100% of their deposits with Silicon Valley Bank and did not even have another bank account. This is not prudent and can incur unnecessary risks. With a bit of distance to the events of Silicon Valley Bank , but seemingly still not over potentially more risks in the banking system, we thought that we would write a brief note on this to offer some guidance.?

So some useful tips:

1. Do not keep all your funds with one bank. If something happens to that bank you are very much exposed and if you do not have another account you can not even transfer funds to another bank. As you all know it takes time these days to open new accounts. We recommend that you have at least two bank accounts. Yes, there is cost involved in this, but it will pay off in the long-term by ensuring you have 2-3 banking relationships that you can leverage for other businesses than deposit, if needed.
2. Spread your deposits. Now that you have 2-3 banks put deposits in each of the banks so that if anything were to happen to one of them you can use one of the others in the interim to ideally continue funding your business for a few months.
3. Choose a good quality bank. Check on your banks rating and its profitability. Yes, some of the more stable banks may not pay the highest interest rates but it is better that your money is safe with two large banks than to take risks with other smaller banks.?
4. Try to get some yield on your money but also do not lock it up if you need the money sooner. If interest rates rise, the value of your security will go down if you do not hold it to maturity so you will lose money if you sell it early. That is sort of what happened to Silicon Valley Bank as they had long term instruments with lower yields and then when rates went up the value of those instruments went down…
5. Do not play with currencies. If your costs are in Euros, keep Euros. Foreign exchange trading is very complex and very few get it right, so keep your funds in the currency that you need to pay your bills.?
6. Needless to say, the environment has taken a step in the worst direction as a result of Silicon Valley Bank , so really look at your cost base and try to take out any excess fat. This is not the market to run high burn rates, which are certainly something investors do not want to see. In this market, investors want to see companies with positive unit economics, manageable burn rates and strong financial acumen. Also, if you need to raise do not wait, start to raise at least 10 months before you need to close.?

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Hope this was helpful and we are always happy to help, so do not hesitate to reach out.?

Best regards,?

Nenad?