The fallout from SVB’s collapse continues to disrupt startups

Food entrepreneur

SANTA CLARA, California. — It’s been nearly a month since the sudden collapse of Silicon Valley Bank, an event that marked the second-largest bank failure in the nation’s history and directly impacted several food and beverage startups, including Omsom, The Better Meat Co. , Tea Drops, etc. .

Sashi Chandran, founder and CEO of Los Angeles-based Tea Drops, was exhibiting at Natural Products Expo West in Anaheim, California, showcasing the brand’s line of bagless, instant tea blends, when he heard “whispers from the founder talking about the movement. money” from a besieged bank, which quickly turned into a “full blown panic”.

“I didn’t think the collapse would happen so quickly, and I certainly didn’t think of it as a business risk when I first opened my bank account,” Ms Chandran said. “My primary concern was the payment of wages and I took immediate steps to open new bank accounts and discuss options with the board as to how we would handle Monday if the wages did not go through the SVB account.”

Vanessa and Kim Famer, sister co-founders of New York-based Asian cooking brand Omsom, detailed in several social media posts the “brutal roller coaster” that began on March 9 when they “started hearing rumblings in the startup community.” of the bank’s possible collapse and ended three days later when it was announced that depositors would regain access to accounts as federal regulators took emergency measures. Citing a “major existential threat” facing many small businesses, the founders asked customers to help raise money by stocking up on products and buying gift cards online. During the uncertain weekend, the “small but mighty team” of nine “came to life, rushing to secure loans, focusing on product plans and gathering updates for our community,” according to the Pham sisters.

Anand Kumar says that startups that have banked directly face the risk of significant disruption, both operationally and financially, especially given the additional headwinds of a high interest rate environment, high inflation, supply chain challenges and changing consumer shopping habits. the change. , Associate Director of Research at Coresight Research.

“In addition to the short-term scarcity of funds, the move towards tighter credit requirements and a greater focus on profitability and free cash flow may further limit early-stage and emerging brands’ funding and entry into the food and beverage industry. ,” he said: “This is because banks and investors will shift their focus to profitable, established brands instead of chasing high-growth emerging brands – there will be pressure on early-stage and emerging food and beverage brands to demonstrate that they are financially viable. are sustainable and worthy of funding.

“On the other hand, we may see some consolidation in the food and beverage industry as larger companies find themselves in a position to cash in on early-stage and emerging brands that are desperate to survive.”

Ms Chandran cited the “possibility of longer-term effects on business that have yet to materialize, such as more bank failures and economic uncertainty that could cast a cloud over the whole business”.

In the wake of the bank’s failure, he plans to stash his funds in multiple institutions and Treasury bills, adding that the incident “made me think about contingency and scenario planning, not just how to plan for a financial crisis, but how to plan. team resources and priorities in light of more uncertain economic times.”

Mr Kumar said the collapse was a reminder for small businesses to “not entrust significant finances to one institution and instead diversify their funds”.

“These early-stage and emerging food and beverage brands can strike a balance between traditional big banks and digital-only ‘neo-banks’ that provide quick access to capital,” he added. “While holding cash in many banks does not generate the same returns as reinvestment, it can help early-stage and emerging food and beverage brands in downturns like this. In addition to diversifying their funds and restructuring their financial strategies, early-stage and emerging food and beverage brands must exercise more discipline in their operating and capital expenditures and aim to turn to profitability as soon as possible.”

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