In a world of banking uncertainty, startups, please pay your bills

In the wake of omnipresent uncertainty ripping through global news amidst the SVB banking collapse, venture plays a significant role in the forthcoming effects. Given SVB did not suffer from a capital problem but rather a liquidity problem, this crisis is far from a singular incident and originates from a more significant, systematic issue. SVB was a prominent source of funding for tech startups and many venture capital firms, yet with the guidance of a few influential figures in venture, a run on the bank was sparked. As concern prolongs, avarice and greed will diminish progress as we seek to restore financial normalcy. As a leader in venture, if you offer guidance not to pay bills right now, I worry you are in alliance with the problem rather than contributing to the solution. By collaboratively minimizing our systematic risk, we generate universal economic strength.

Observing the ownership and swift measures our fund managers have taken throughout the last five days to shield our portfolio companies from the situational effects of SVB’s fall has been inspiring. In our portfolio companies, my recommendations are that cash is tightly monitored, undue exposure in receivables are prioritized, and, where appropriate, new credit solutions to ensure financial stability within each company are secured. While the unpredictability of the markets, specifically the debt markets, persists, I suggest limiting expenditure, keeping a close eye on AR, and asking for pre-payments (even if on a credit card). The most substantial risk within startups to date was not clearing payroll yesterday, the 13th. When the FDIC guaranteed deposits beyond the traditional $250K limit for SVB and other banks, this risk was quickly alleviated. The current impediment has shifted to startups’ access to credit, which may take up to weeks to months to fully shake out..

Startups and large companies use credit lines to run payroll, fulfill invoices, and maintain a general cash fund instead of equity. However, 50% of startups banked with SVB to utilize this capability and may not have access to untapped lines of credit. In addition, startups, and other companies, that did not bank with SVB but rather a regional bank have felt the impact of tanking stocks and have withdrawn access to those facilities. Through the precariousness, there is some uncertainty as to how companies with reduced access to credit will pay their bills, and the varietal capability of impact will reveal itself only in time.

While stocks tank, regional banks seem to be weathering the storm and I am optimistic that restoration is only a matter of time. To expedite the re-establishment of the stock market, we are encouraging all constituents of our portfolio to pay their bills on time to eliminate the unforeseen ripple effects of not doing so. Unfortunately, the leaders we have seen offer guidance to delay bill payment are egocentric in their regard to the detrimental impact this action has at scale on receiving companies’ cash flow, creating expected cash fallacies and significant spread cash issues. In sum, to the startup and venture universe: please pay your bills on time.