Shark Tank investor Kevin O'Leary is laying down the law to his startup CEOs in the wake of the Silicon Valley Bank and Signature Bank collapses.
"We've told our CEOs: Do not put more than 20% of our liquid assets in any one institution," O'Leary said on Yahoo Finance Live (video above). "I don't care who you know or how big they are, there's always the next black swan idiot manager in big and small banks. So we don't know who they are. So I only want 20% in any one institution."
The blunt advice could prove useful to startup founders in the future if the past week in high finance is any indication.
Silicon Valley Bank's collapse last Friday marked the second-largest bank failure in the U.S., behind only Washington Mutual during the Great Recession. Signature Bank's demise was the third-largest bank failure in history.
SVB's troubles left startups unable to access their cash, sparking fear about how they would fund their often not profitable operations.
"Well, it has certainly been a roller coaster," Alan Patricof, veteran venture capitalist and Greycroft Partners co-founder, said on Yahoo Finance Live. "It has provided, I would jokingly say, entertainment for a not-very-relaxing weekend. I mean, this in a way has been a long, long time coming."
The ugly situation caused regulators to spring into action to prevent a banking crisis and mass tech layoffs, which is what likely would have happened if left unaddressed, sources told Yahoo Finance.
A joint statement from Treasury Secretary Janet Yellen, Fed chief Jerome Powell, and FDIC chair Martin Gruenberg on Sunday said depositors would have access to all of their money from the stricken banks.
No losses will be borne by the taxpayer, they stressed. Any losses to the Deposit Insurance Fund to make uninsured depositors whole will be recouped by a special assessment on banks.
The Fed also made available additional funding to eligible depository institutions to help assure they can meet depositor needs.
Patricof said the aftermath of the bank failures will lead to changes in how capital is raised by startups.
"They're [startups] going to have to look for alternative sources of capital because my assumption is that this type of lending is going to change dramatically," Patricof explained. "And that banks are going to be very, very cautious about lending to early-stage startup companies under the assumption that they're traditional loans, if you will. And I think that it's going to open up the need for convertible debt financing from other types of lenders, or investors, I should say, or preferred stocks."
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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