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Startups urged to pull cash from small US banks to protect themselves

SVB
SVB

Venture capital firms have urged startups to pull their cash from small banks and shift them into the likes of JP Morgan and Bank of America in order to protect themselves.

The advice, contained in a note to startup founders, was signed by seven prominent VC firms including Silicon Valley’s Kleiner Perkins, General Catalyst, Redpoint Ventures and others.

“Maintain accounts with 2-3 separate banks at all times, with one being one of the four largest in the US,” said the note, which named the four as Bank of America, Citi, JP Morgan, and Wells Fargo.

Founders were also advised to develop a short-term investment strategy with a “duration below 6 months”. Investors added: “Remember the goal is to preserve capital, not generate hedge fund returns.“

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Start-ups were also called upon to “create a process to prevent fraud” as large amounts of money are moving more frequently, with wire and invoice scams on the rise in particular. The financiers warned that fraudsters have “been increasing in number and sophistication over the last few years”.

The VC firms’ advice to startups comes after the collapse of Silicon Valley Bank (SVB) and the attempted rescue of Credit Suisse, with the “systemically important” Swiss financial institution being bailed out in a $3.2bn (£2.3bn) deal on Sunday night.

SVB’s UK arm was rescued from collapse earlier this month in a £1 sale to HSBC, which injected £2bn of liquidity to stabilise the tech-focused lender.

Some British startups criticised SVB UK, saying its venture debt loan products concentrated risk by forcing founders to run their companies’ everyday spending through the bank.

BlackRock boss Larry Fink has warned of a “slow rolling crisis” after SVB’s US parent collapsed, with the world’s biggest money manager telling investors: “It’s too early to know how widespread the damage is.

“The regulatory response has so far been swift, and decisive actions have helped stave off contagion risks. But markets remain on edge.”