In the wake of the Silicon Valley Bank collapse, venture capital firms have been urging their start-up clients to focus on the oft-overlooked function of treasury management. This means preparing for the possibility of financial disruptions, and figuring out how to manage their company’s funds in a way that ensures protection and stability.
Many start-ups, even those with substantial funding, had concentrated all their cash in just one or two banks. In the aftermath of Silicon Valley Bank’s run, this left them vulnerable to potential losses since regulators would only insure the first $250,000. With the ease of raising cash in recent years, it became all too easy to amass large sums at a pace that may have outstripped the company’s actual needs.
The VC’s have recommended that start-ups consider branching out to a few different banks, including at least one of the four largest in the US, and hold three to six months’ worth of cash in two core operating accounts. Any excess cash can be invested in safe and liquid options to generate more income. They urged start-up founders to prioritize their treasury management along with other aspects of business development, lest they fall victim to an “extinction level event”.
Founders are acknowledging the need for a rapid education in corporate banking, as many have made the same mistakes with insufficient attention to risk management. Scrambling to move large sums in the face of a banking crisis is not a sustainable long-term strategy.
Given the frequency of scams and fraud targeting start-ups, some fraudsters have even tried to impersonate legitimate counterparts by requesting start-ups to wire money to new accounts. Finding qualified senior financial personnel who are experienced in steering start-ups through trying times can be a challenge.
According to some experts, the CFO skillset may be changing to prioritize risk mitigation over dynamic, growth-oriented strategies. Tech companies would do well to cultivate a more responsible approach to their finances and to diversify their banking relationships. There is also a suggestion that VC firms step in to offer treasury functions to their investee companies, though not all agree that this is a problem that needs solving.
In summary, treasury management should be an essential component of any company, regardless of size or industry niche. Start-ups should diversify their banking relationships, cultivate investment and diversify their portfolios with safe, liquid options. A well-thought-out treasury management strategy can mean the difference between survival and failure, especially in a volatile financial landscape.#Startups #learn #hard #manage #cash #SVBs #collapse