Take Five: Bank failure doesn’t trip Madison tech firm
Meghan Gaffney, founder of Madison technology startup Veda, is one of the lucky ones. When Silicon Valley Bank failed over the weekend, requiring protective action by the Federal Reserve and the Federal Deposit Insurance Corp., Gaffney’s company was already well diversified in where it kept its accounts. As for some of her vendors, it’s a work in progress. Veda makes and sells artificial intelligence and machine learning platform technology designed to save health care payers and providers administrative costs. It does so by improving the processing speed and accuracy of information, but nothing prepared it and other SVB depositors for the events of the past week. In this Take Five interview, Gaffney talks about the lessons learned.
How has your business been impacted by this development?
“Veda did have some deposits in Silicon Valley Bank, but we were fortunate in that we made a decision in 2020 that we would primarily work with a local bank here in Wisconsin — Lake Ridge Bank, which at the time was the State Bank of Cross Plains — and so that diversification decision made the impact of Silicon Valley Bank’s challenges very manageable for us as a company. While it increased uncertainty, it was largely vendors of ours that were impacted that provided the most concern, rather than for the health or ability of our business to function.”
How are your vendors doing right now?
“Folks are OK. The FDIC came in and set up the bridge bank very quickly and that provided enough certainty by Monday morning that most of our vendors were operating as normal. They were able to make payroll, folks were able to access their money, and we were able to access our money on Monday morning. And so now, the question we ask is: What choices are our vendors making for sustainability in the future? Are they diversifying properly? Are they making the right choices so that we don’t have this concern again if there is another bank like Silicon Valley Bank …”
What feedback are you getting on diversification from your vendors? Have they been scared straight?
“We haven’t heard much yet, but I can tell you other portfolio companies and startup founders that I’ve talked to, both in the HealthX Ventures portfolio and here in Madison and broadly across the industry, folks are definitely taking different actions than they were before and really planning out their treasury strategy in a way that they are using two or three banks, ensuring that there is a safety net that might not have been there before. So, I feel comfortable that the industry is responding and startups are responding appropriately and getting the right guidance from their investors, which is really important.”
How have the other banks and your venture partners stepped up to help so far?
“Lake Ridge Bank has been incredible for us. I got two phone calls, personally, from our banker there on Friday of last week. He knew that we had some deposits in Silicon Valley Bank. He asked how they could help. He wanted to know if there is anything I have questions about that they might have answers to — FDIC functionality or the procedures that were in place. So, they remained a tremendous banking partner, and Jim Tubbs there, their president, is very aware of what small businesses like ours need in order to function. So, that was really great. And our venture partners, we were lucky. Our local venture partner, at HealthX Ventures, encouraged our diversification early. They took a very different stance than the coastal investors that we worked with now and in the past, meaning that they really encouraged us to use a local bank and to diversify in a way that would protect us. They continue to give us that support in how we manage our treasury, but Midwestern businesses making smart financial decisions is not a new trend.”
There is a lot more common sense between the coasts.
“Yes, and it’s a lot more fashionable. All of a sudden, these practical, conservative business decisions about how you grow a company in a way that’s sustainable, and that were not necessarily in vogue a year or two ago — they are now.”
You mentioned your vendors, but what has been the reaction of health care customers that you’ve sold your technology to?
“Health care is a conservative industry, so our customers were happy to hear that we didn’t have a large impact from the SVB shutdown, and it’s something we talk about a lot with them. They are concerned about business continuity. Health care doesn’t stop when there is a banking crisis, so our customers were happy to hear that we had both a diversified portfolio and some local roots.”
Nerve-wise, or anxiety-wise, what has the past week been like for you?
“I’ve had anxiety for the industry because I know there are a lot of good people who have founded companies who were led to make decisions about where to bank and how to set up their businesses that clearly didn’t serve them very well. And so, I’m concerned about that larger impact. For Veda, I felt really buoyed in our decisions that some of the things that weren’t necessarily popular or fashionable that we decided to do — such as investing in our community and bonding with the Madison business community, whether it’s banking or investors — and making these practical decisions, it just reinforced over the last week that those were the right decisions for us to make as a company, both for our employees here in Madison and for our employees across the country and for our customers.”
And finally, what lessons have you learned from this banking experience with SVB? Obviously one is diversification, which you’ve already mentioned, but what about understanding the business model of your bank going in? That was a big issue with SVB. Their success was predicated on low interest rates that no longer exist.
“It’s about relationships. Your banker is just another partner in growing your business. Like any other partner, you need to get to know them. The business model is part of it. Service is part of it. Communication is part of it. As a Silicon Valley Bank member, I did not get a lot of communication from the bank. They weren’t being open with their customers about these challenges. I can’t understate the amount of communication I get from Lake Ridge here locally. I asked them on Monday to help me understand how secure they are and how resilient this bank would be for the future, and I got really detailed information about how their deposits were structured and how they make investments and how they diversify in their insurance plans, and that kind of communication in a relationship is just as important with a bank as any other vendor.”