This is not investment advice.
So, where should we put our money? The collapse of SVB has every startup looking for answers. The key for the future is diversification.
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Here are some ways to mitigate risk:
The 50/50 Split
The natural next move is to put all our money into JP Morgan or another giant bank. That should fix the solvency issue, but it raises others.
Startups often struggle to work with big, old banks. They can be slow moving and unwilling to offer basic products like business credit cards.
So we need more flexibility. But we don’t want to go through another SVB.
How about we split the difference?
We could keep half our money in a Big 4 bank (JPM, Citi, BoA, Wells). The other half can go to a bank that specializes in startups (Mercury, Brex, etc.).
The Bullet Approach
Investor Jason Calacanis proposed an intriguing solution of his own: 1 primary bank and several smaller accounts to hold emergency funds.
Perhaps you use Mercury as your primary bank. Then, you could also have 1 payroll’s worth of money in each of 3 big banks (JPM, Citi and BoA).
Should anything happen to Mercury, you can still make payroll 3 times.
This is a great solution. It keeps most of your money in one place, making it easy to pay vendors and employees.
But it also preserves safety in a crisis.
Zombie Apocalypse Approach
The safest approach is to never exceed the FDIC $250,000 limit at any bank. However, this is not workable.
$250,000 isn’t even a single payroll for many companies. Payroll systems and vendor payments would have to constantly be switched over.
We need bank safety. But we also need to run a business.
Wrap-Up
We’re still working out the best response to SVB. In the end, no approach is without risk.
But any setup that gets us multiple accounts is a huge improvement.
There’s also a big opportunity here. If a startup can make it easy to balance money across banks, they’ll find a lot of customers.
Where will you be keeping your startup’s cash and why?
Leave a comment and let me know!
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