Lessons learned from Silicon Valley Bank's collapse, from Asian food startup Omsom

The collapse of Silicon Valley Bank may have been one of the biggest curveballs thrown at small businesses.

One year later, sauce and noodle startup Omsom, created by Vietnamese-American sisters Vanessa and Kim Pham, is thriving. But the company had to navigate through rough seas in the aftermath of SVB's demise, where the then-3-year-old company had kept all its capital.

Vanessa Pham was at the Expo West trade show when whispers of SVB’s troubles began circulating in March 2023.

"When I first heard ... that morning from other founders that they were getting communications from their investors to move their funds, it was kind of surreal," Pham told Yahoo Finance during an interview for the second season premiere of Lead This Way. (Check back for the full interview on Thursday, Mar. 14).

Many founders were at a loss for next steps, Pham said, having to balance being "measured ... thoughtful and really do my research," while knowing that they had to act quickly.

Pham swiftly opened another bank account and tried to transfer Omsom’s funds. But the money couldn’t be moved — as it turns out, investors and depositors attempted to withdraw $42 billion from the bank within that same 48-hour period.

Pham found herself "fearful" of how the team would meet payroll that Monday. As uncertainty escalated, the sisters did what any young founders would do: Took to social media with an open letter.

"Running a proud and loud business doesn't always mean being celebratory," the co-founders wrote on LinkedIn. "Sometimes it's about choosing to make decisions in the light and bring others along for the journey. So let's talk about how Silicon Valley Bank's collapse poses a major existential threat to many small businesses, including Omsom ..."

The post, asking for support from the startup's community to stock up on products, purchase gift cards, and share its story, garnered more than 2,000 likes and nearly half a million impressions. Exposing the vulnerable side of a startup "definitely brought a lot of new people into our universe," Pham said.

The Federal Deposit Insurance Corporation (FDIC) eventually stepped in and took over SVB, a move that allowed businesses to get their full funds back.

Now, the Pham sisters are forging ahead with a few hard-won lessons. No. 1, diversify where you put your money — and research the banks before plunking down the cash.

"It's important to think about what type of coverage you have with certain types of bank accounts," Pham said. For example, FDIC insures deposits of up to $250,000 at each covered bank.

Founders should also understand and assess the "health and risk level of a bank's balance sheet” and build a support network and contingency plan.

“Is there an investor that can help you make payroll?” advised Pham. “Is there quick access to short-term capital that you can access during times like that?"

Some of Omsom's investors include Jen Rubio, co-founder of luggage company Away; Shan-Lyn Ma, co-founder of wedding registry platform Zola; Jared Smith, co-founder of RxBar; and Elly Truesdell, co-founder of VC firm New Fare Partners.

Truesdell said the SVB debacle was a lesson for VCs to step back from “irresponsible” deal-making and frothy valuations.

"It was just such a wake-up call to the industry around balance and appetite for risk," she told Yahoo Finance over the phone.

It was a "really good reminder" to "scrutinize every contract, every partnership and relationship we're in," said Truesdell, who recommended doing due diligence on how companies are managing their portfolios, including who they're banking with.

Female founders face hurdles in winning VC dollars

Getting access to VC funding is no easy task for female and minority founders.

Pham and her sister bootstrapped the company with their own life savings for a year before getting their current roster of investors.

And the environment could be getting harder as interest rates remain high and VC activity stays well below its 2021 levels.

In 2023, the deal count for all-women-founded startups dropped by more than 25%, per a PitchBook report, "indicating that while investors continued to deploy capital, they became more selective.”

And while all-male-founded companies pulled in $114.8 billion in funding in 2023, all-female-founded companies only fetched $3.2 billion, according to Pitchbook data.

Although funds targeted at female and other underrepresented founders fill an important gap, Truesdell advocates for VCs to “broadly look at every company out there." New Fare picks "the best founders, and we end up at a 50/50 male-female split,” she said.

“You hear about so many VCs who go after founders who have a real chip on their shoulder or a reason to persevere,” said Truesdell. “Then everyone should be investing in minority founders and female founders, because they've been rejected ... [they have] such perseverance, grit."

Truesdell, who has brought hundreds of international brands to Whole Foods over the years, said her biggest advice for female founders is to persevere and use adversity as their motivation.

“Own and harness what it is that you're really good at, and the value that you know that you bring ... It's so important to lean into our strengths and to own them,” advises Truesdell.

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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