There is no one-size-fits-all answer when it comes to how small businesses will be impacted by Silicon Valley Bank’s collapse. However, many experts say that the failure could have a ripple effect on the economy, as businesses and customers attempt to move their money elsewhere. In fact, some banks have already ceased doing business with SVB’s clients as a result of the closure.
Given my experience with building tech businesses, I’ve been uniquely positioned to understand the challenges and potential solutions that startups face when it comes to raising capital. While the low cost of financing has played a role in facilitating the growth of numerous companies, it has also created an environment in which startups are increasingly forced to raise money at a much faster pace than they have in the past. This taller funding ceiling can pose several problems for startups: It makes it difficult for them to build a strong team or acquire key assets; It can lead to rushed products or lower-quality products; And it increases the risk of failure because companies that struggle to fundraise quickly may be unable to keep up with their competitors. In order for startup ecosystems and companies themselves to thrive, there needs to be more emphasis on stable liquidity – providing accession rounds that are timed well so that companies don’t exhaust their runway too early and canScale later on when necessary.
While I hope for the best, it’s important for founders and CEOs to plan for the worst. This will be the weekend that differentiates a good entrepreneur from a bad one.
A good entrepreneur anticipates the challenges that may come their way and prepares accordingly. They don’t wait until it’s too late to do anything, as this can often lead to costly mistakes. Bad entrepreneurs tend to be catastrophically unprepared for any obstacle that comes their way and are usually left scrambling when things go wrong. This weekend, whether you are a founder or CEO, know that there will be challenges on the horizon – so make sure you are prepared for them.
It was a challenging time for entrepreneurs in 2020, as COVID-19 pandemic swept the globe. Many of the early stage startups that relied on venture funding were hit hard, as investors became highly selective and many meetings were canceled altogether. Although startup companies can bounce back from adversity, it can be difficult to find new investors during these trying times.
If you are a founder or CEO of a company banking with SVB, it is important to be prepared for the bank’s bankruptcy. This will be the weekend that differentiates a good entrepreneur from a bad one. The ability to anticipate and prepare for difficult times is what will make the difference between success and failure.
1. Come up with a creative and innovative solution to a problem that is relevant to your target market. This can be anything from developing a new way to do business, creating an entirely new product category, or creating an innovative marketing approach.
2. Be persistent in Marketspace and other channels of distribution, as well as networking events associated with your industry sector. Attend trade
1. Get to the office
I was privileged to attend the War Room meeting this weekend, where we planned for the various scenarios that could occur. We looked at several possible scenarios and came up with a thoughtful plan based on each. We prepared for the worst, stayed calm, and executed with precision. I’m confident that we’ll be able to weather whatever comes our way and stay safe.
Pursue aggressive cost-saving measures to extend the cash runway. This will allow the business to remain afloat while it implements its long-term strategy.
Initial targets include examining expenses for areas where cuts can be made without negatively affecting quality or customer satisfaction, renegotiating contracts that are unnecessarily costly, and seeking out funding alternatives that would provide short-term relief.
One potential tactic is seeking permission from creditors to defer payments due on borrowed funds. Another option could be liquidating assets in an effort to free up money quickly, but this may not be ideal if doing so detracts from the company’s primary mission or decreases its value. Ultimately, every business will have different costs and potential savings targets, so it is
2. Build an internal three-person tiger team
Large companies can take years to shift from one business model to another. They often have many layers of bureaucracy which makes it difficult for leaders to make decisions quickly. By contrast, a startup can rapidly adapt its product and customer offerings based on the feedback of its users. This is a great advantage when faced with competing new businesses but it also has some risks. If the company doesn’t keep up with changes in technology or the market, it could lose customers and even go out of business.
The bank is facing high uninsured deposit losses and desperately needs to extend their cash on hand. Their hope is that uninsured depositors will see high recovery rates quickly, giving them time to replenish their depleted coffers.
3. Start communicating with investors now
If you are a small business owner who needs more capital than the Federal Deposit Insurance Corporation (FDIC) insures, it is important to reach out to current investors and be transparent about your SVB exposure. Many potential investors are willing to help businesses secure additional funding without anystrings attached, if they understand the nature of your debt and are comfortable with the risk. By being upfront and asking for help from those in a position to offer it, you can eliminate much of the uncertainty and hassle associated with securing financing on your own.
Assuming the deposits are processed and all investor funds are accounted for, there should be relatively few unresolved issues by Monday morning. However, it is still important to stay organized and contact any individuals or organizations that may have questions or concerns about their respective investments. Doing so will help keep everyone informed and minimized any potential disruptions of the market.
If your small company has had success in attracting angel investors and is now seeking more finance, then there are a few things you should remember. Firstly, always have a repayment plan in place with potential investors – even if it isn’t guaranteed. Secondly, ensure that your pitch to investors is concise and easy to understand; make sure that all key information is included so that no questions arise after the investment has been made. Finally, be aware of the risks involved when seeking new finance – make sure you are fully informed and comprehensive about them before making any decisions.
