SVB collapse: An insurtech account-holder's view from Covie

March 13, 2023 11:44 AM

In the middle of the afternoon on Thursday, March 9, Trent Harvey, CEO and co-founder of the Austin-based insurtech Covie, noticed a Reuters article being passed around in some of his online groups. The article was about the pending collapse of Silicon Valley Bank, which held the majority of Covie's cash.

"Initially, you look at that, and you're like, 'Surely this isn't going to happen,'" Harvey says. "It happened so fast – it was mind-blowing."

Harvey and a team of seven operate Covie, which provides an API platform to help link data from insurance and "insurance-adjacent" companies to each other. Its customers range from independent agencies, who use the connections to improve their data pre-fill capabilities, to property managers who need to verify renter's insurance coverage. The company launched in 2020 and has raised seed money from funders including Y Combinator, and is planning to move into Series A soon.

Over the weekend between Friday, March 10, when SVB went into receivership, and Monday, March 13, the day after officials announced a guarantee for SVB's depositors even for funds in excess of the FDIC's $250,000 limit, companies like Harvey's found themselves in limbo. Digital Insurance editor in chief Nathan Golia spoke to Harvey about his experience on the morning of the 13th.

Thanks for taking the time to chat with me. Can you tell me a little bit about yourself?

Trent Harvey, Covie

ALEXANDRA WHITE PHOTO

My background was in consulting. I did a little time in insurance at an MGU in San Francisco. But they lacked a way to verify third party coverage. Trying to solve problems for them on how to get data accurately from these third parties became the foundation of Covie.

I've been a lifelong entrepreneur – this is my sixth swing at starting a company. I've tried to start everything from a small game studio to an edtech company – trying to build software to compete with Blackboard. I've been through the wringer of the entrepreneurship journey a few times. But this was the first one where I was able to get into Y Combinator, get venture backing and start actually developing real traction.

YC and SVB had a fairly close relationship. Did they encourage you to bank there?

It was organic for us. When we first started in 2020, SVB was the natural banking partner. You're starting your first business bank account for a new company. And you're like, "Well, I want to go with someplace reputable." But at the same time, there's an element where you're thinking, "The big boys have so many fees let's go with something that's geared towards what we do. And hey, they've got a great reputation. Let's start there."

Were you surprised that this was happening?

Absolutely. I'm part of a number of different social online communities and groups. You just start seeing this, like, mass panic. People say, "My investors are reaching out to me and saying we need to pull our money." I've never experienced a run on the bank. I'm like, "That's history book stuff." And so it definitely came as a surprise and completely caught us off guard.

SVB seemed to be in a unique position relative to other banks – where so many of its customers were having to make withdrawals naturally at a time when its investment performances were slipping. Then, of course, that was exacerbated by the run. Were you experiencing that in the weeks and months leading up to this?

So as a startup, and as something that's still fairly early stage, we are not what YC and other business communities called "default alive." We still have a burn rate. And so, even as we periodically add cash to those piles, we gradually draw down on them. Those burn rates improve over time, but you're still ultimately drawing down. Definitely venture funding recently has been in general, just more difficult. Smaller check sizes, fewer rounds. So yeah, you know, we've been continuing to draw down on ours, and [our SVB account] was still definitely our primary working capital. We were fortunate enough that early on, we did diversify.

That has to be a relief. What did you do?

We put some money in Brex. When things fully collapsed on Friday, at least, we were able to turn around and look and say, "Hey, at least we still got something in there no matter what." Is it a lot? No. Is it enough to make payroll next week? Yes. It's funny, though, because when we first set up Brex, we discussed, "should we put more cash in Brex?"

How do you think this experience will change founders’ views of how to manage risk, even as an early-stage startup when there’s so much to do just to get a company off the ground?

This is a transformative moment that is going to stick with founders for a long time. [At Covie,] we're going to start taking a much more aggressive approach to diversification, just about different types of assets and different banking entities. As much as our immediate plan is, "we've got to get our cash into Brex," because of the fact that what we have already established and immediately available, but we can't, for the same reason, keep all of it in Brex.

When we were going through the Y Combinator program, one of the speakers that they brought in to talk to us was the founder of GitLab. T hey talked about how they had gone through the financial crisis of 2008 and how that shaped their fundraising that they did in the lead up to 2020: Even when things were just getting a little bit questionable, macroeconomic-wise, they were talking about continuing to fundraise as much as possible, because they didn't want to be found in a position where they were cash strapped. I was like, oh, that's interesting. I don't know that we would ever do that. But I get it now.

Do you think founders will start thinking more strategically about having a financial manager involved earlier in the process, even when their company is still tiny?

It's gonna be a great time to be a CFO for startups, I think every single one of them is starting to start paying a lot more attention to their fiscal policies and the way that they manage their capital in a way that thinks beyond just simply the burn rate. They're going to start thinking strategically about where they put it, invest it, secure it.

I think you're gonna see pressure, especially from investors, who are also caught up in this, to make their startups be more aggressive and think more about that, Right now, the adage is like, you don't need a CFO until your Series A or Series B, sort of situation. But I think you're gonna start seeing companies really start leaning towards building accounting and finance leadership, even earlier on in their lifecycle. This is really underscoring how important it is that even at a small scale, even when you're a startup, corporate governance is still important. You can't simply just ignore policies, procedures, and the actual underlying strategy of running the company that looks beyond something of the product. And that's something that I think has been massively underappreciated in the startup world.

Thanks so much Trent. Last question: Where are you right now with the news that the bank’s deposits will be guaranteed? Have you heard from anyone about what that will look like?

In terms of direct communication from SVB, or the FDIC, we haven't received anything yet. I've definitely heard a lot from people who I would regard as trusted insiders, well-connected individuals from our founder and investor network, that have had those first-level conversations with members of the Fed and members of the Treasury. So the information we're getting back from them, even in the lead up to that announcement, was very promising. I know over the weekend, my anxiety and stress decreased substantially even ahead of the announcement, purely on the basis of trusted relationships that I had. We're breathing here.