How to Protect Your Assets During a Financial Collapse?
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When we store something, we expect it to be there when we return, whether it's cash, jewelry, or luggage.
So, imagine the fear, panic, and anxiety many people felt on Friday, March 10, when Silicon Valley Bank (SVB) collapsed. It was the second-largest financial bank crash in United States history.
"My DMs have been flooded with fellow small business owners who are deeply worried - for those creating physical goods, not having access to working capital severely hampers our ability to create a sellable product, manage inventory, and keep the lights on," said Kim Pham, co-founder of Omsom in a LinkedIn post. "When large institutions and gatekeepers make big changes, the smallest and most marginalized groups often feel the impact the heaviest. I'm writing this not to garner pity but to show you the realities of running a small, WOC-run CPG brand in 2023. We're navigating a recession, the hangover of a pandemic, sociopolitical traumas, and now the second largest bank failure in American history."
How did this happen? Joanna Glasner offered her thoughts in a column posted on Crunchbase.
“While the bank about half of funded U.S. startups chose — Silicon Valley Bank — failed to appropriately hedge for the combination of higher-interest rates and increased withdrawals, it’s errant to blame this misstep on depositors. They weren’t involved in the financial planning, and, like most of us, base decisions on where to put their money on an institution’s reputation, track record, service, and product offerings. Pointing the finger at SVB makes more sense. The bank wasn’t well positioned for changing market circumstances and put out an opaque and poorly timed press release about plans to shore up finances that then precipitated a bank run. California regulators closed the bank on Friday and appointed the Federal Deposit Insurance Corp. as receiver. The move effectively wiped-out shareholder equity in the company.”
The government assured SVB customers that they could retrieve all their funds from a newly created bridge bank, Silicon Valley Bank, N.A. Depositors should have full access to their money by ATM, debit cards and writing checks in the same manner as before, per the FDIC.
"The U.S. banking system remains resilient and on a solid foundation, largely due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry," mentioned in an official statement by the Treasury, Federal Reserve, and FDIC. "Those reforms combined with today's actions demonstrate our commitment to take the necessary steps to ensure that depositors' savings remain safe."
We talked to our friend Alice Zhang, co-founder and CEO of MyPocketCFO, for her thoughts on the collapse.
She advised founders impacted by the SVB collapse to move SVB deposits into one of the top four banks, such as Chase, and make it the main payroll/expenses account. Then she suggested opening a secondary backup bank account with less than $250K.
Alice suggested that extra cash should be deposited in government-backed security such as a treasury bill (T-bill). Use Alice as a resource for any additional questions. Her e-mail address is alice.zhang@mypocketcfo.com.
Additionally, we've scoured the net to find additional resources, tips, and best practices should founders find themselves in a similar situation. However, keep in mind ALWAYS contact your financial advisor first before deciding on your next move.
Get influx cash by reaching out to customers and encouraging them to purchase the product.
Be transparent with your consumers and vendors. If you did bank with SVB, it might take time to recover your assets. There might be a delay in regular operations.
Check-in with your investors and fellow founders. Even if the SVB situation didn't impact your company, it might have caused chaos for others in your network. Reach out to your friends in the startup world and make sure they are OK.
Look into short-term options for financing, including Wayflyer and Nitra, which have pledged their support to assist founders impacted by the collapse of SVB.
Continue to be vigilant. Even though this situation seems resolved now, shockwaves are being felt throughout the startup community. "The immediate question is: Even with the Fed's actions, are other banks vulnerable, and which ones may be next?" wrote Sally Krawcheck in a blog post.
Take care of yourself. For ideas, check out our blog posts on How Entrepreneurs Can Prioritize Themselves, Protecting Ourselves Against Stress, and Cultivating Hope and Optimism in Hard Times.
Crises are stressful, emotional, and exhausting for everyone involved. However, successfully managing a problem is part of the job requirement for CEOs and leaders. Utilize the Silicon Valley Bank collapse as a chance to hone your crisis management skills, refine your cash contingency plans and learn from the experiences of others.