Opinions expressed by Entrepreneur contributors are their very own.
The collapse of Silicon Valley Bank was an existential crisis for founders like me – one which got here out of nowhere and had nothing to do with the strength of our firms. Overnight, something as fundamental as access to our own capital was called into query.
It revealed a tough truth: much of the startup ecosystem was based on assumptions that were never truly tested under pressure. Founders were suddenly forced to confront questions that the majority had never seriously considered—how secure their banking relationships really were, how resilient their capital structure was, and what would occur if critical institutions stopped behaving predictably.
For me it wasn’t theoretical. This put a $100 million deal in danger and compelled a direct reset in my approach to fundraising, risk and control. Strategies that made perfect sense in stable markets quickly unraveled. In their place, I needed to adopt a distinct perspective – one which prioritizes optionality, redundancy and resilience alongside, and maybe even before, efficiency and optimization.
We didn’t select a stress test
When Silicon Valley Bank has collapsedthe primary concerns were immediate. Would we have the opportunity to access our money? Could we do a payroll? Could operations proceed without interruption?
At the time, I used to be running my first startup, a fintech company that helped young families construct savings for his or her children. Because we operated in a regulated economic system, our business trusted rather more than simply deposits from banks. We relied on them for payments, custody, credit facilities and core operations. The SVB was deeply embedded on this infrastructure.
The timing of the SVB’s collapse exacerbated the impact. My company was in the midst of an energetic M&A process with multiple potential buyers and ongoing management discussions.
That momentum got here to a halt almost immediately in our $100 million-plus deal. Our investment banker advised us to expect significant delays in fintech transactions, potentially extending deadlines by a yr or more. Valuation expectations were reset and the likelihood of a deal modified overnight, not because our business had modified, but since the environment had modified.
What began as an operational crisis quickly forced founders like me to cope with structural realities that they hadn’t needed to cope with before.
How common fundraising assumptions increase risk
Before SVB collapsed, I made quite a lot of assumptions that most of the founders shared. When they saw in real time that they were failing, a reset was crucial.
- Institutional stability was assumed, not constructed. SVB was treated as infrastructure slightly than a fallible resource. Its repute and integration into the startup ecosystem created a way of security that was not supported by structural resilience.
- Venture capital was viewed as low-risk leverage. In strong markets, enterprise debt feels efficient. It expands the runway without the immediate dilution that comes with enterprise capital investments. It became clear how this debt was actually stuck within the waterfall.
Because enterprise debt is above equity within the exit waterfall, it might block future financing in declining markets: recent investors are reluctant to place fresh capital into an organization where debtors have first claim to assets and money flows. In our case, the debt reduced flexibility and made recovery financing rather more difficult when we wanted it most.
- Institutional support was assumed to persist even under stress. There was an implicit belief that long-standing relationships would supply continuity in a crisis. What SVB revealed is that institutions prioritize their very own survival first. Support is obtainable, however it is conditional and unpredictable.
- Fundraising was optimized for growth, not resilience. Many decisions were made with stable markets in mind. As conditions modified, the identical decisions limited options slightly than preserving them.
All of this has redefined the way in which I take into consideration capital. Fundraising was now not about maximizing value or extending the runway at any cost. It was about managing downside risks, staying on top of things and understanding how the waterfall actually works if something goes flawed.
How to lift funds in a world where “normal” now not exists
The SVB bankruptcy made one thing clear. Founders cannot construct firms that require stability or institutional protection. Fundraising today requires different priorities. Here’s how you’ll be able to protect your startup, minimize financial risk while maximizing control:
Diversify banking relationships early and actively
Concentrating all money in a single institution creates unnecessary risk. Founders should maintain energetic relationships with multiple banks, even when this seems inefficient. Accounts needs to be open, funded and tested. During a crisis, the power to maneuver money quickly can determine whether an organization survives the subsequent payroll cycle.
Be extremely conservative in relation to risk financing
Debt changes the waterfall in ways in which many founders underestimate. Because enterprise capital debt exceeds equity, it might block recovery capital and make recent investors hesitant in a downturn. Founders should evaluate debt based on the way it impacts future funding under stress, not only the way it extends runway during good times. When debt reduces optionality, it increases risk.
Test institutional assumptions under pressure
Founders should ask investors, lenders and partners direct questions before committing. What happens in a market shock? How are essential decisions made when conditions change? What flexibility is there actually? Clear answers reduce risk.
Maintain optionality at every level of the organization
Optionality goes beyond capital. This includes banking relationships, covenants, partnerships and exit paths. Structures that lock an organization right into a single consequence are likely to fail first when conditions change.
Assume that support is conditional
Institutional support isn’t guaranteed. Founders should plan to cope with disruptions without external rescue. Conservative leverage, diversification and structural flexibility create room for maneuver when markets turn.
Building for uncertainty
The lasting lesson from SVB’s collapse is how founders structure firms for uncertainty.
Market shocks can bring fundraising to a halt, freeze exits while exposing hidden constraints. Founders who understand their waterfall, limit structural risk, and maintain optionality give themselves the power to adapt as conditions change. In a world where “normal” can disappear overnight, flexibility and preparation are what keep businesses afloat.
The collapse of Silicon Valley Bank was an existential crisis for founders like me – one which got here out of nowhere and had nothing to do with the strength of our firms. Overnight, something as fundamental as access to our own capital was called into query.
It revealed a tough truth: much of the startup ecosystem was based on assumptions that were never truly tested under pressure. Founders were suddenly forced to confront questions that the majority had never seriously considered—how secure their banking relationships really were, how resilient their capital structure was, and what would occur if critical institutions stopped behaving predictably.
For me it wasn’t theoretical. This put a $100 million deal in danger and compelled a direct reset in my approach to fundraising, risk and control. Strategies that made perfect sense in stable markets quickly unraveled. In their place, I needed to adopt a distinct perspective – one which prioritizes optionality, redundancy and resilience alongside, and maybe even before, efficiency and optimization.
