The historic collapse of Silicon Valley Bank taught companies a valuable lesson: diversity your funds, according to Ness founder and CEO Derek Flanzraich.
“There’s always lessons to be learned … from every challenge and an obstacle. And this is no different,” Flanzraich told FOX Business.
Ness, a startup fintech company that’s working on bringing to market the first premium health & wellness-first credit card, had the majority of its funds, nearly $5 million, tied up in the bank when it failed last week.
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After the bank was taken over by federal regulators, Flanzraich vowed that Ness will never put the majority of its funds in just one institution.
“That’s probably advice for everyone,” he said, adding that it’s “a hard learned lesson, but a lesson nonetheless.”
Silicon Valley Bank, which is the nation’s 16th-largest bank, collapsed last week right after depositors rushed to withdraw money over concerns on the bank’s health.
Ness was among the droves of depositors and investors that initiated withdrawals equating to about $42 billion in deposits on Thursday alone, causing a run on the bank, according to a regulatory filing.
This marked the second-largest bank failure in U.S. history and the largest since 2008 when Washington Mutual collapsed.
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Flanzraich said Ness was eventually able to get full access to the funds. On Monday, he wired the majority of funds to Ness’ sponsor bank, the Bank of Missouri. The company already opened an account with JPMorgan Chase and plans to open up a few more accounts with a few other big banks too, according to Flanzraich.
However, the collapse brought on quite a bit of instant anxiety for Flanzraich, who has been working hard to bring first premium health & wellness-first credit card to market with his team.
“I’m the kind of CEO who enjoys the hard stuff as much as the good stuff. It’s amazing to see the team come together and to tackle tough problems. It is … a lot less exciting when there’s an existential threat that goes beyond something that’s kind of in our control,” he said, adding that “in this case, the slight possibility that the entire industry would be vaporized overnight was not a fun one to think about.”
Ness is also just a week out from sharing publicly what the company has been diligently working on. Fortunately, the bank failure hasn’t impacted this timeline, he noted.
That said, the possibility that this “mission driven business that we’ve been working hard at building wouldn’t be able to ultimately see through its ultimate vision” was “really nerve wracking,” he said.
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The company, like so many others that may have also banked with Silicon Valley Bank, is “trying to build something that helps, that makes a difference for people,” Flanzraich said.
On Monday, Timothy Mayopoulos, Silicon Valley Bank’s new chief, told clients that the bank is back to business as usual, according to Reuters.
Still, Flanzraich doesn’t necessarily have plans to utilize them anytime soon.
“I understand that everything in the bank is fully FDIC-backed … but we’re not thinking that short term,” he said. “The long term solution is to go with … banking partners that we can trust and hopefully trust not to make similar mistakes.”
Despite the stress of the actual event, Flanzraich did offer some praise for how effective the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve were in handing this situation.
“They stepped into a really tricky situation,” Flanzraich said. “They were able to answer and address most of the concerns in a short period of time and at least seemingly forestall a larger level contagion even with other banks going under. And that is a very good thing, not just for startups.”
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