The collapse of Silicon Valley Bank appears to have entered and left Pittsburgh's startup scene with little fanfare, but actions taken now could better prepare the region's startups for similar occurrences in the future.
Ilana Diamond, managing partner of Pittsburgh-based 412 Venture Fund LP, said her vacation last weekend came to an abrupt end following SVB's collapse, which has since been taken over by federal regulators who have stated all prior deposits will be made whole, even those above the $250,000 FDIC-insured threshold.
Diamond said she has spent the past few days fielding calls from the firm's portfolio companies and those of its limited partners. Remaining calm throughout this whole saga has helped immensely, Diamond said.
SVB claimed it held accounts for 44% of the nation's startup and health care-related companies combined. However, the Santa Clara, California-based institution does not appear to have much of a presence in Pittsburgh, according to Diamond and several others who are familiar with the banking operations of Pittsburgh startups.
Diamond said between one-third and half of 412 Venture Fund's investments are in startups outside of the region, which is where she said she saw almost all of the fallout from SVB's closure take place. A limited number of its local portfolio firms saw an impact, Diamond said, which only amounted to a tie-up of funds equal to less than a month's runway of operations at most. According to the FDIC, funds like these and others are now once again available to SVB account holders following last Friday's collapse of the bank.
Amid all of this, now is the time to prepare for times ahead, Diamond said.
"We are talking to our companies about planning, and we're thinking for ourselves, too, making sure that we're not holding funds above the FDIC limit, even though we're banking with big, stable banks," Diamond said. "It's just good policy."
Diamond said advice that she has received, and that 412 Venture Fund is following, is the concept of spreading deposits across multiple bank accounts or placing those deposits at a firm that "sweeps" these deposits with other partner banks, which could allow for a greater FDIC insurance threshold. She noted San Francisco-based Brex Inc. as being one such firm that offers this latter concept built into their services, and she said she was familiar with a similar concept being available through a product from Mercury, another San Francisco-based fintech firm.
"Whether it's using a service like that or whether it's not holding it above $250,000 in just a regular FDIC-insured bank account and putting it in one of these money market mutual funds that are held for you by the bank so it's your asset even in the case of a failure; it's those kinds of things that I don't think any of us paid close enough attention to and now we are," Diamond said. "Does it make sense for a small startup to have nine accounts? No, probably not, but might it make sense for someone like them to work with someone like a Brex that would manage that for them? Maybe."
Diamond continued: "I can't advise in general. I think this is something that each company has to look at their own expenses and their own cash needs and decide for themselves based on what makes sense from a cash management standpoint for them. But I am saying that I think that if you're a small startup and you got $2.5 million sitting in one bank account at this point, I think you might want to consider alternatives because there are easy alternatives."
Foo Conner, a founder-in-residence at Carnegie Mellon University's Swartz Center for Entrepreneurship, said his SVB bank account for Jekko, a Pittsburgh-based digital media platform he founded in 2013, was affected over the weekend, though he noted it was a minor account for his startup and not one that was used for major business operations. He attributed his diversity in banking sources as a reason for why he could remain calmer than others over the weekend, though he ultimately was still surprised to learn of SVB's collapse amid his prior national and prominent advocacy work against the impact that large financial institutions weld.
"This is shocking, especially for a fast-paced startup that is needing access to capital to [then] not have it when you've gone through it, you've earned it, secured it through venture capital, anything like that," Conner said. "So to me, I was like, 'I protested against this; why is this happening?' I spoke out at Occupy Wall Street in 2011 in the heart of Zuccotti Park, and to see this happening again is shocking to me."
Conner said he's spoken with others in Pittsburgh's startup community about SVB's collapse in recent days and noted candidly that many are hesitant to speak publicly about it.
"It's embarrassing to talk about. It's embarrassing to say we don't have access to funds," Conner said. "Everyone wants to tout the big checks. Everyone wants to tout the winning of pitch contests or the winning of clients, and when it comes to something like this, people are shy and ashamed to say we don't have access to money. They view it as a stigma."
