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But why would the startups become illiquid? Do they get the investments from the banks or do they park the investment money in this bank? And why this bank, w

But why would the startups become illiquid? Do they get the investments from the banks or do they park the investment money in this bank? And why this bank, when there are many more risk averse institutions out there?

NordSteve 4y ago
For business banking, you want a bank that understands your business. SVB was in the first rank of banks that understood startups. Many startups aren't particularly sophisticated financially and just kept their capital in cash in the bank.
- hef19898 4y ago
  What did James Ray say again about FTX? Something along the lines of "a group of highly unsophiscated people"? Man, the CFOs of the affected start-ups should all look for a new job. By the way, preventing things like that is something a good MBA does.
  - tome 4y ago
    > James Ray John Ray?
    - hef19898 4y ago
      Yes, that's the one! I knew it was something with "J"!
CyanLite2 4y ago
They become illiquid because they don't have access to their money that was in SVB. They can't make payroll, can't pay vendors and landlords. The employees will leave first. Vendors next.
- omgomgomgomg 4y ago
  But normally, they will be bought by another bank coming Monday and resume business. The fdic assigns a buyer and pays the buyer, from what I understand. Edit. I just realized, in the us, if there is no bidder, the fdic can close down the bank or run it itself.
jojosbuddy 4y ago
Bridge loans, DES, convertible notes, etc..., I'm sure their were loan "products" for startups similar to helocs (likely what put them in the hole). The appetite for crypto/fintech startups was huge during the pandemic and likely pressured them to get creative on products and overleveraged. It's all unwinding now. Unfortunately, harder now for startups, mind that all those startup dreams from laid off FANG staff just got their rug pulled.
- dehrmann 4y ago
  > likely what put them in the hole No. It sounds like they bought a bunch of safe, long-term load-backed assets. When interest rates went up, the value of the assets went down. This isn't a problem if no one withdraws before the loans are due, but if they do, they have to sell the assets that declined in value.

NordSteve 4y ago

For business banking, you want a bank that understands your business. SVB was in the first rank of banks that understood startups. Many startups aren't particularly sophisticated financially and just kept their capital in cash in the bank.

hef19898 4y ago
What did James Ray say again about FTX? Something along the lines of "a group of highly unsophiscated people"? Man, the CFOs of the affected start-ups should all look for a new job. By the way, preventing things like that is something a good MBA does.
- tome 4y ago
  > James Ray John Ray?
  - hef19898 4y ago
    Yes, that's the one! I knew it was something with "J"!

CyanLite2 4y ago

They become illiquid because they don't have access to their money that was in SVB. They can't make payroll, can't pay vendors and landlords. The employees will leave first. Vendors next.

omgomgomgomg 4y ago
But normally, they will be bought by another bank coming Monday and resume business. The fdic assigns a buyer and pays the buyer, from what I understand. Edit. I just realized, in the us, if there is no bidder, the fdic can close down the bank or run it itself.

jojosbuddy 4y ago

Bridge loans, DES, convertible notes, etc..., I'm sure their were loan "products" for startups similar to helocs (likely what put them in the hole). The appetite for crypto/fintech startups was huge during the pandemic and likely pressured them to get creative on products and overleveraged. It's all unwinding now. Unfortunately, harder now for startups, mind that all those startup dreams from laid off FANG staff just got their rug pulled.

dehrmann 4y ago
> likely what put them in the hole No. It sounds like they bought a bunch of safe, long-term load-backed assets. When interest rates went up, the value of the assets went down. This isn't a problem if no one withdraws before the loans are due, but if they do, they have to sell the assets that declined in value.