Silicon Valley bank collapse: Startup Ness says companies can learn valuable lesson

The historic collapse of Silicon Valley Bank taught companies a valuable lesson: diversify your capital, according to Ness founder and CEO Derek Flanzraich.

“There are always lessons to be learned … from every challenge and every obstacle. And this is no different,” Flanzraich told FOX Business.

Ness, a fintech startup working to bring the first premium health and wellness credit card to market, 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 would never place the majority of her funds in a single institution.

“That’s probably advice for everybody,” 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 immediately after depositors rushed to withdraw money over concerns about the bank’s health.

Ness was among the throngs of depositors and investors who began withdrawals amounting to about $42 billion in deposits on Thursday alone, sending the bank reeling, according to a regulatory filing.

That marked it the second largest bank failure in US history and the largest since 2008 when Washington Mutual collapsed.

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Flanzraich said Ness was eventually able to gain full access to the funds. On Monday, he sent most of the funds to Ness’ sponsor bank, Bank of Missouri. The company has already opened an account with JPMorgan Chase and plans to open a few more accounts with a few other major banks, according to Flanzraich.

However, the collapse caused enough immediate concern for Flanzraich, who is working hard to bring the first premium health and wellness credit card to market with his team.

Ness founder and CEO Derek Flanzraich. Ness is a fintech company working on the first premium health and wellness credit card. (See)

“I’m the kind of CEO who enjoys the hard stuff as much as the good. It’s amazing to see the team come together and tackle tough problems. It’s … a lot less exciting when there’s an existential threat that goes beyond something that’s kind of under our control,” he said, adding that “in this case, the small possibility that the entire industry would evaporate overnight was not fun to think about.”

Ness is also just a week away from publicly sharing what the company has been diligently working on. Fortunately, the bank’s bankruptcy has not affected that schedule, he noted.

That said, the possibility that this “mission-driven business that we’ve been working so hard to build might not finally be able to 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 partnered with Silicon Valley Bank, is “trying to build something that helps, that makes a difference for people,” Flanzraich said.

On Monday, Timothy Mayopoulos, the new head of Silicon Valley Bank, told clients that the bank was returning to normal business, according to Reuters.

A customer (L) reads a notice about the closing of Silicon Valley Banks at the banks headquarters in Santa Clara, California on March 10, 2023. (Noah Berger/AFP via Getty Images/Getty Images)

However, Flanzraich doesn’t necessarily have plans to use them anytime soon.

“I understand that everything at the bank is fully backed by the FDIC … 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 not make similar mistakes.”

Despite the stress of the actual event, Flanzraich did praise how effective the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve were in dealing with this situation.

“They got into a really tough situation,” Flanzraich said. “They were able to respond and address most concerns in a short period of time and at least seemingly prevent a larger level contagion even with other banks. And that’s great, not just for startups.”

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