Published by Jessica Weisman-Pitts
Posted on March 29, 2022
4 min readLast updated: February 8, 2026
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By Mike Butler, CEO Grasshopper Bank
It’s one reason why the innovation economy is ditching the establishment in favor of digital banks.
Venture capitalists can’t quite write a blank check to the innovation economy—but they are trying. In 2021, global venture capital funding totaled $621 billion, up a staggering 111% from 2020 and shattering all other previous records. US investment represented about half of that figure at $311 billion, a 106% year-over-year increase with early-stage companies capturing more than half of the investment activity.
Clearly, raising capital is not an issue, but if funding isn’t the problem, why do two-thirds of start-ups fail? Building a start-up into a high-profile firm or a unicorn takes more than a successful funding round or two. Managing that capital after the fundraise is actually among the top challenges for start-up companies and other small businesses. In separate surveys from SCORE and CB Insights, poor cash flow management is pegged as the top reason why start-up ventures fail.
Legacy banks, however, are ill equipped to respond to the distinct business dynamics of a start-up, which, unlike a stabilized company, have an evolving business model and rapid growth that comes as the company scales and captures market share. Standard banking practices just aren’t nimble enough to respond to those needs. But, with record-breaking VC investment alongside rising challenges, like inflationary pressures, stock market volatility and a destabilized economy, a progressive banking partner has become essential to the financial wellbeing of start-up ventures—and more often, digital banks are proving the best fit to fill that role.
The 2021 start-up cash flow survey from Intuit best illustrates the disconnect between traditional banking and cash flow management. While nearly 90% of start-up businesses have a dedicated business bank account, 69% of companies have experienced cash flow issues to the extent that it disrupted business operations, and 34% of companies are not using any tools to manage money. That’s a problem. Start-up ventures need easy access to fund management data, including real-time cash-on-hand metrics, transaction logs and accurate investment options; tools that manage expenses, like ACH payments and BillPay; and forecasting tools, all of which provide insight into a company’s core business fundamentals and financial health. These tools should be a standard for start-up operations—and for digital banking users, they are.
It isn’t surprising to see start-up companies embrace digital banking. Three quarters of Americans are already using digital banking services for personal financial management, and digital banks have an inherent synergy with start-up companies. Innovative concepts are already leveraging technology and data as part of standard business operations, and it makes sense to utilize those tools for financial management to reap the same major benefit: efficiency. It’s the magic word when you are operating a business. With a digital banking partner, tedious and time-consuming traditional banking tasks are replaced with convenience—the ability to access and manage accounts from anywhere; complete transactions online; automatic bill pay and deposits; and accommodation for multiple authorized users.
The experts at Crunchbase expect another strong global venture funding environment this year, and the right banking partner will not only keep pace with this growth but will also provide stability during periods of economic dislocation—invaluable as companies continue to wade through post-pandemic uncertainty—while continuing to support strategic growth. That’s because, perhaps most importantly, you shouldn’t be in it alone. The right digital bank should be a partner in the enterprise with experts that understand the unique dynamics of the business and can provide actionable insights on how to manage funds and create customized solutions.
In Why Startups Fail: A New Roadmap for Entrepreneurial Success, the book’s author and Harvard Business School professor Tom Eisenmann said, “Problems with a broad set of stakeholders, including employees, strategic partners, and investors—not just founders—all can contribute to a venture’s downfall.” But, the right strategic partners can also contribute to a venture’s success.
Ultimately, the smart money will prevail. When the music stops, VCs are satiated and the money stops flowing, start-ups with strong financial management and a quality banking partner will be best positioned for success.
Digital banking refers to the online delivery of banking services, allowing customers to manage their accounts, make transactions, and access financial tools via the internet.
Cash flow management involves tracking and analyzing the inflow and outflow of cash in a business to ensure it has enough liquidity to meet obligations.
Venture capital is a form of private equity financing that provides funding to startups and small businesses with high growth potential in exchange for equity.
Startups are newly established businesses, often in the early stages of development, typically focused on innovative products or services and seeking rapid growth.
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