What caused the SVB collapse?
Silicon Valley Bank, the 16th largest bank in the country, failed on Friday and was taken over by the FDIC, after a run on the bank Wednesday and customers withdrew $42 billion of deposits by the end of Thursday. SVB mostly served technology workers and startups, including some of Silicon Valley’s biggest names, such as Roku.
SVB provided banking services to nearly half of all US venture-backed technology and life science companies and has benefited from the massive tech industry boom in recent years.
So how can companies and startups prevent getting caught up in this in the first place?
”For a startup, the best insulation against a bank collapse, like we witnessed with SVB, is to be cash flow positive, like we are at Iterate.ai. We funded the development of our Low-Code AI platform largely by selling innovation consulting services, and this focus on positive cash flow and profits has reduced our risks by decoupling our business from the Pandemic or an SVB banking collapse. When SVB collapsed, we thought we could lose 92% of our cash because it was an uninsured deposit at SVB. However, because of our disciplined approach to running a cash flow positive startup, our financial projections showed that we’d survive the collapse, even in a worst-case scenario. It’d be tight, but we’d get through it,” explains CEO and Co-Founder of Iterate.ai Jon Nordmark.
“Our view of these external disasters is that they build our company’s character. Bank collapses, pandemics, the dot bomb, the 2001 terrorist attacks — they are all stress tests. Disciplined companies survive them, and come out the other side stronger. Lessons learned from my first company, eBags.com, which thrived through the dot-bomb and the terrorist attacks have taught me the value of running a tight ship financially. As a result, Iterate.ai has almost always been cash flow positive and we’ve pretty much bootstrapped to become a $10 million revenues software AI startup. Startups should gate new hires to new revenues, startups should be highly experimental,” Jon states.
“So many startups struggle and even fail because they focus on getting funding and keeping investors happy, rather than sustainably growing their business and customer base. Customer-funded businesses can better weather economic storms and keep their employees for the long-term,” said Co-Founder and CTO Brian Sathianathan