The landscape of business banking has shifted significantly over the past year and a half, and it’s been notably challenging for startups. The collapse of Silicon Valley Bank (SVB), high interest rates on capital, and a highly publicized banking-as-a-service (BaaS) bankruptcy have shaken confidence in previously trusted banking approaches.

The system overall has been exposed as fragile, and founders have felt the threat this imposes on their most precious resource — the cash they’ve raised. As a result, founders are establishing a new set of rules for their business banking. They are prioritizing diversification, cash stability, liquidity, and high-yield treasury to help them make every dollar count.

With our deep connection to the startup community — 1 in 3 US startups uses Brex — we have been at the forefront of helping to define and deliver on these new rules of banking to meet the needs of startups and other high-growth companies with a best-in-class business account product that combines checking, treasury, and vault in a single account.

The new rules of startup banking.

Prior to the SVB collapse, many startups didn’t prioritize bank deposit diversification nor did they fully understand the risks of having most of their deposits in an uninsured bank.

Today, startups are focused on protecting and optimizing the cash they have, which is why they care deeply about the stability and security of their financial institutions. Historically, smaller startups (e.g., those in Seed or Series A stages) would park all of their funds in one financial institution, but the fall of SVB and First Republic has ignited interest in new diversification strategies that help protect against a bank run.

We appear to be in a long cycle of elevated interest rates, where yield is more critical. And founders and finance teams are shifting their focus from fueling growth at all costs to building a sustainable business with robust financials. Every dollar in the business counts, and the new north star for startups is a sustainable path to profitability.

All of this has meant a philosophical shift in how founders and finance teams operate. Now more than ever, founders and CFOs are considering a cash management strategy across different financial institutions with the following criteria top of mind: stability, liquidity, yield, operating speed, and security.

In this article, we’ll go over the questions founders and finance teams should consider when looking for the best banking solution to help them navigate today’s macro environment. Then we’ll dive into how Brex built our banking solution to deliver the utmost in stability, security, liquidity, yield, and speed in a single operating account.

1. What should startups look for in a banking provider?

Given the macro trends mentioned above, an institution’s stability and reliability are now of the highest importance to founders, followed by liquidity, runway optimization, and ease of use.

To find a banking provider who can deliver on this new hierarchy of banking needs, here are key considerations for each pillar:

Stability and reliability:

• Does the banking provider have a strong balance sheet? How much FDIC insurance do they offer? Are they a bank, leveraging a banking-as-a-service provider to access a bank, or directly integrated with the bank?

Liquidity:

• Are the funds accessible right away, or does it take several business days to access? This is an important consideration when thinking through OPEX as well as urgent or unexpected expenses that need to be paid.

Runway and cost optimization:

• Is the institution providing an ROI on dollars deposited? Does the institution charge fees for transactions or treasury products? Is there a minimum balance requirement?

Access and ease of use:

• As a founder, it’s important to focus on things like fundraising, getting product market fit, or growing headcount. Your banking partner should make it easy to spin up an account and operationalize funds. This includes the number of integrations the bank has to offer with ERP software (e.g. QuickBooks and NetSuite) and payroll providers.

2. Should startups have multiple bank accounts?

The short answer is yes. But the number and types of financial institutions you need depend on many variables like your:

• Funding stage
• Total cash on hand
• Liquidity requirements
• Working capital requirements
• Burn rate vs. runway

For example, a typical SaaS or AI startup that just raised a Seed or Series A would generally have limited liquidity needs due to the fact that they are selling software and have lower OPEX. As such, they would generally care more about runway optimization but not at the cost of liquidity and would want to park 3-6 months of runway in their operating account and have the rest be in a liquid treasury product that earns dividends. If the startup is pre-revenue or if their revenue is not enough to cover their OPEX, then they would continue to replenish their operating account from the funds in their treasury account. Usually this setup can be done with a single financial institution, but it’s always worth evaluating whether you can have an operating account with one institution and treasury operations with another.

Overall, startups are encouraged to have multiple relationships with different banking providers – primarily because neobanks and traditional banks typically serve different needs.

• Neobanks are designed to enable startups to move fast operationally
  • Think fast online application, mobile app, simple and intuitive interface, spend controls, financial software like budgeting and reimbursements, reliable money movement rails (ACH and wire transfers), and streamlined payments and billing (corporate credit cards and bill pay).
• Traditional institutions are known for offering basic, necessary banking services
  • Think in-person branches, checking accounts, venture debt, lines of credit, IPO services, and M&A services. The downside with traditional players is that they typically offer lower yields with their MMF costs or servicing costs.

Traditional banking providers, however, typically ask for 50% to 80% of your total deposits, and the majority of the funds are generally kept there in a treasury reserve. The remainder of your funds would then typically be kept with another provider that enables you to move faster operationally (e.g., faster payments, more intuitive UI, integrated bill pay and credit card, spend management) and access highly liquid treasury products.

3. Can the right banking provider help extend your runway?

Recent venture investments have slowed, and VC firms are looking for more signals of strong business fundamentals (e.g., profit margins) rather than purely growth results. As a result, companies have changed the way they build products (i.e., thinking through not just growth but a path to monetization) and manage their finances. Every dollar raised is hard-fought, and making the most of every dollar becomes increasingly important as startups consider options for investing their capital.

One way to get more from every dollar is to look for a solution that makes it easy to invest your non-operating cash, typically through a treasury account. A few considerations when thinking about making the most of every dollar via treasury products are:

1. Risk tolerance: Is the financial instrument at risk for principal loss?
2. Liquidity: Can the financial instrument be liquid easily to support unpredictable operating needs?
3. Minimum deposit: Are there requirements from your institution on holding a minimum deposit to earn yield?
4. Fees: Are there any management fees associated with the product in question?

There’s a stack rank of importance here. Startups should optimize for treasury products that have the minimum risk for principal loss, maximum liquidity, and a (considerable) amount of yield. A money market fund, which is typically invested in government securities or cash, is an example of a product with low risk and high liquidity.

Due to the unpredictable nature of starting a business, the guiding principle is that startups should care about extending their runway, but never at the risk of their funds losing their principal value or being locked up.

How Brex helps you protect and grow your cash.

We built the Brex business account with all of these modern requirements in mind, creating an account that enables startups to extend their runway with competitive yield industry-leading yield with zero fees, move their money fast, and secure more of their funds while maintaining 100% liquidity.

To do that, we took the best parts of banking, treasury, and vault and put them together in one account with no cost to sign-up:

• Checking: Offered through Column N.A., Member FDIC, the account’s checking features make it easy to securely send money worldwide with ACH transfers, checks, domestic wires, and international wires in over 40 currencies. You can set up your account entirely online.
• Treasury: Access to an interest-earning treasury account comes standard, with no fees, minimum balance, liquidity restrictions, or waiting periods, ensuring customers can earn yield and optimize their cash through Brex from their first dollar.
• Vault: You’ll also be able to diversify your cash across up to 20 program banks as well as for up to $6M of total FDIC insurance.

You’ll always be able to clearly see how much of your money is protected, invested, or in checking. This kind of transparency, speed, and diversification simply isn't possible with typical banking products. The Brex business account is the only account that delivers the stability, liquidity, yield, operating speed, and security that startups need today, which we explain further below.

[Stability]. Trust your funds are protected.

Traditional banking products provide customers with a single layer of FDIC insurance, no diversification, and limited liquidity on their invested funds, which typically requires a second account. Though there are inherent risks within any financial system, Brex business accounts are designed to offer less exposure than an individual bank due to these qualities:

• 100% of funds in Brex business accounts are available for withdrawal.
• Brex doesn’t lend against deposits in Brex business accounts.
• Brex does not hold customers’ cash on our balance sheet, except for some money in transit.
• Brex allows you to choose how your money is stored, with a combination of FDIC-insured deposits across up to 20 program banks as well as MMF investments.
  

[Liquidity] Access 100% of your cash.

Your funds held in treasury have a fast liquidity period (0 to 1 business day), so you can easily access them for any unplanned expenses. And we’ve made it simple for you to set up auto-transfers between checking and treasury so that only your required operating capital is kept in Checking, while the rest is moved over automatically to earn competitive yield.

Many neobanks require a minimum holding amount to access yield, while traditional banks provide liquid checking accounts but with minimum yield. Brex has no minimum balance requirements to earn yield, so startups can start earning on every dollar from day one!