Will the white-knuckle experience of surviving Silicon Valley Bank’s meltdown change how companies—especially young private companies—behave? What will they do differently?
That question surfaced in a recent National Association of Corporate Directors webinar on the issues facing boards following the bank’s collapse.
In the hour-long discussion, participants touched on the need to develop and rethink cash management policies, hold comprehensive directors and officers insurance, outsource financial risk management when a company doesn’t have the right in-house talent, and question all assumptions about financial safety. But panelist Gary Zimmerman, managing partner of Six Trees Capital, also pointed out that just days after SVB and Signature Bank shut down, many companies were already making the mistake of counting on a single vendor for their finances by embracing sweep accounts.
In such an account, a custodian bank can automatically move a client’s money to a different institution once a deposit exceeds a preset limit, such as $250,000, the maximum amount the FDIC guarantees. Using that strategy so that more of your capital is insured sounds smart, but “if that custodial bank goes under, you lose access to all of your money until the resolution process is completed,” Zimmerman explained, and few people seem to realize that.
The broad takeaway from SVB’s demise is not just about cash or bank deposits, he said, but educating yourself about every agreement you sign. Don’t mindlessly listen to your VC or a board member, he would tell founders. It’s about “reading the fine print, understanding where there's risk and where there isn't, and not just taking at face value what your friends said, or what your colleagues said, or what the latest advertisement said. You really need to think critically and dig in.”
See below for a list of questions board members should take to their next meeting, as suggested by Zimmerman and others. You can watch the full webinar here; it’s free, but registration is required.
Lila MacLellan
lila.maclellan@fortune.com
@lilamaclellan
