On March 10, many Silicon Valley startups and investors woke up to the terrifying news that Silicon Valley Bank had collapsed. Now that the Federal Deposit Insurance Corp. has stepped in, the panic has subsided and the dust has settled, startups still face an uncertain banking environment. Kate Clark, senior reporter for The Information, spoke with two founders who were close to the action: Immad Akhund, co-founder and CEO of Mercury, a fintech company that many startups flocked to after the collapse of SVB, and Rahul Vohra, founder and CEO of Superhuman, an email app that had much of its money tied up in SVB at the time of the bank’s failure.
The three discussed what that day was like for them and shared their best advice for startups navigating a still-shaky financial environment.
Waking Up to Birds Singing, Coffee Brewing…and Financial Collapse
Vohra remembers vividly that he realized the bulk of Superhuman’s funding—$125 million—was at risk. “I woke up that morning to at least four or five different text messages and Twitter DMs. All people knew at that time was that there might be a liquidity issue developing at Silicon Valley Bank.” Vohra waited for the rumors to shake out. “An hour or two later, it became clear to me and the board that ultimately there may be nothing systematically going wrong at Silicon Valley Bank—at least nothing they wouldn’t be able to recover from. But unfortunately, that’s not how confidence works when there’s a potential bank run.” He quickly convened a board meeting. “We made the determination that every other startup made: If there’s a run on the bank, you don’t want to be the last person running—you want to be the first person running. We decided we’re going to run a preemptive payroll. And we’re going to start looking quickly for a new bank.”
Growth at Any Cost?
In the wake of the SVB collapse, it may be time for startups to start prioritizing profit over growth. Vohra said, “If you’re a venture-backed startup, aiming for profitability is fine, but only if you’re also growing really fast. I would buckle down. I would invest more in product. I’d look at the overall efficiency of the team, and most importantly I would ask, ‘Do we have the runway to make it through what might be two, three years of not a particularly great environment to raise in?’ Because if you can avoid raising this environment, you should.”
So what new habits should startups adopt with respect to cash management in the wake of the SVB collapse? Akhund had this advice: “If you're sub a few million and you're below the FDIC insurance limit, I would definitely set up a couple of bank accounts. But I wouldn't stress too much more than that. Beyond a few million, especially if you've got a longish runway, I would go for money market funds. If you've got more than $30 million, ideally you have someone who is a finance leader. You probably want to look at treasury ladders.”
Looking at a Brighter Financial Future
As startups—and thousands of people who have suffered layoffs—know, the economy hasn’t been in a good place for some time. But what’s the outlook for the next year or two? Clark asked Akhund and Vohra for their predictions. Akhund said, “I think most indicators are that rates have peaked. As soon as they start heading downwards, that’s going to be a fairly positive thing for the startup ecosystem. It’s not going to be like back to 2021, but the startup ecosystem does rely on optimism.”
Vohra agreed, and added, “I think what we’ll see is a huge uptick in merger and acquisition activity. Now, this isn’t going to happen anytime soon, because acquirers are being very precious with their cash. We’re still seeing layoffs, but that will change, I think, in the next two years. A ton of companies will potentially be looking to sell and find a good home for their products, their customers and their team. At that point, acquirers will be looking to leverage their cash, which today they’re hoarding.”
The Forever Story of Silicon Valley: Boom or Bust
While the outlook might be bleak in the short term, the panelists agreed that the horizon holds promise. Silicon Valley has always been a boom-or-bust market. But innovation never rests, even in a depressed economy. As the post-SVB environment recovers and venture capitalists regain their appetites, startups should continue to do what they do best: Innovate and bring exciting new products to market.
Did you miss the panel? You can catch the full replay on our site.