What Startups Can Learn from the SVB Collapse: Cash Management Guidelines

Lessons learned from the recent events in the banking sector as well as best practices for cash management

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The Silicon Valley Bank collapse highlighted why startups should learn to manage their cash carefully by having a robust cash management strategy in place. An effective strategy includes monitoring cash flow, keeping expenses in check, securing financing options, and prioritizing investments. By taking a disciplined approach to cash management, startups can avoid unforeseen banking issues or economic volatility and remain viable in the long run. Here are some of the main takeaways that we’ve been sharing with portfolio companies to make sure they can navigate uncertainty in any market:

Overall Lessons Learned from Recent Events:

1. Bank diversification is key. We recommend utilizing one banking institution for operational accounts as well as a second banking or brokerage institution to house any excess funds.
2. Understanding bank account properties is incredibly important. Learn if there are sweep or money market account options. If so, have a mandate that all funds over $250k in each account are swept into these FDIC-insured accounts on a daily basis
3. Even in a situation of urgent nature, it is IMPERATIVE to remain consistent with fraud controls. Especially when setting up new bank accounts, you should be verbally verifying the wiring instructions with your point of contact to ensure you are not wiring to fraudulent accounts

Cash Management Practices:

1. Maintain a record of cash transactions on a consistent basis that allows you to monitor the cash inflows and outflows. This is helpful for budgeting short and medium-term expenses and managing cash between being available for use versus being invested.
2. All accounts with a balance over $250k should be enrolled in daily sweep accounts that are FDIC insured.
3. If there are excess funds you can utilize an asset management account with the below types of instruments which are not subject to the FDIC-insured limit:

• T-Bills
• Commercial paper
• Corporate bonds
• Money market funds

Prime Movers Lab invests in breakthrough scientific startups founded by Prime Movers, the inventors who transform billions of lives. We invest in companies reinventing energy, transportation, infrastructure, manufacturing, human augmentation, and agriculture.

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