Food Entrepreneur SANTA CLARA, CALIF. — Nearly a month has passed 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 and others.

Sashee Chandran, founder and chief executive officer of Los Angeles-based Tea Drops, was exhibiting at Natural Products Expo West in Anaheim, Calif., showcasing the brand’s line of bagless, dissolvable tea blends, when she heard “whispers of founder talk around moving money” from the beleaguered bank that quickly unfolded into “a full-blown panic.”

“I didn't think a collapse would happen so quickly, and I certainly did not factor this into entrepreneurship risks when I first opened my bank account,” Ms. Chandran said. “My primary concern was making payroll, and I took immediate steps to open new bank accounts and discuss options with my board on how we would troubleshoot on Monday if payroll had not wired through the SVB account.”

Vanessa and Kim Pham, the sister co-founders of New York-based Asian-inspired cooking brand Omsom, detailed in several social media posts the “brutal rollercoaster” that began on March 9 when they “started to hear rumblings in the startup community” about the bank’s potential meltdown and concluded three days later when it was announced depositors would regain access to accounts as federal regulators undertook emergency measures. Noting the “major existential threat” posed to many small businesses, the founders asked customers to help shore up cash by stocking up on products and buying gift cards online. During a weekend swirling with uncertainty, the “small, but mighty team” of nine “stepped up — hustling to secure loans, pivoting on product plans and putting together updates for our community,” according to the Pham sisters.

Startups directly exposed to the bank immediately were at risk of facing substantial disruption, both operationally and financially, particularly given the additional headwinds of a high-interest rate environment, elevated level of inflation, supply chain challenges and shifting consumer shopping habits, said Anand Kumar, associate director of research for Coresight Research.

“In addition to the near-term scarcity of funds, a move toward firmer lending requirements and a greater focus on profitability and free cash flow could further limit the ease with which early-stage and emerging brands gain financing and enter the food and beverage industry,” he said. “This is because banks and investors will direct their attention toward profitable, established brands instead of chasing high-growth emerging brands — there will be pressure on early-stage and emerging food and beverage brands to show that they are financially stable and worthy of funding.

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

Ms. Chandran cited the possibility of “long-term ramifications to the business that have yet to be realized — like more bank failures and economic uncertainty that could place a cloud over businesses as a whole.”

In the wake of the bank’s failure, she plans to store her funds across multiple institutions and treasury bills, adding the incident has “forced me to think about emergency and scenario planning — not just how to plan for a financial crisis but also how to plan team resources and priorities in light of more economically uncertain times.”

Mr. Kumar said the collapse serves as a reminder for small businesses to not “entrust their substantial finances to a single institution and diversify their funds instead.”

“These early-stage and emerging food and beverage brands can look to balance between traditional big banks and digital-only ‘neo banks,’ which provide fast access to capital,” he added. “While maintaining cash across multiple banks does not generate similar returns as reinvestment, it can help early-stage and emerging food and beverage brands in the events of such downturns. In addition to diversifying their funds and reorganizing their financial strategies, early-stage and emerging food and beverage brands should exercise more discipline in their operating expenses and capital expenditure, and aim to pivot to profitability as soon as possible.” 

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