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Regulatory capture, it's called. Man, it does a lot of damage. Long ago I and colleagues opened accounts at SVB for two different outfits with VC money. It was

Regulatory capture, it's called. Man, it does a lot of damage. Long ago I and colleagues opened accounts at SVB for two different outfits with VC money. It was simply the thing to do when getting started converting that money into software that would then produce lots more money. It was simply the thing to do. We didn't have CFOs. We knew darn well our deposits would exceed the household-banking FDIC insurance limit. It would have seemed a brutal waste of very precious time to do an independent background check on our banks. Look, friends, the rule of law is what makes it possible to do business. If we lowly startup entrepreneurs can't trust institutions like banks reliably to provide their services, and we can't trust the government to do their part in maintaining that reliability, who can we trust? Are the next YC classes going to get their financing in Krugerrand gold coins? Are they going to need to look for safes on EBay along with the other gear they need to make the magic happen? Lowly? Yeah. Compared to banks, governments, infosec certification people, even landlords and vendors? Yeah. Lowly. We have to be able to trust our environment at least a little bit to succeed. This regulatory capture is freakin' ridiculous and has to come to an end.

NordSteve 4y ago
Startups have to do risk management all of the time -- it's a core activity of entrepreneurship. Can we trust this vendor? Is this new hire going to work out? Will this API vendor scale to what we need/be around in the future? Finance is no different. There are no "safe" investments, only varying levels of risk and reward. Mitigating the risk of a single bank failure locking up your $2MM raise is a couple hours of work. Only you can say whether mitigating that risk is worth the effort.
- nouveaux 4y ago
  Putting money in a bank is risk management.
  - deleted 4y ago
    [deleted]
  - sillybov3456 4y ago
    Respectfully, it's not. Choosing a bank is an aspect of risk management, the act of throwing all your money into whatever thing that calls itself a bank and is most convenient is not risk management, it's risky behavior. Risk management would be asking the question "should I be putting all my eggs in a basket that seems very tied to the tech economy / northern California real estate market / low interest rates?". Diversification would be trying to get the money you use to pay your tech workers invested in something as far away from tech as possible.
    - nouveaux 4y ago
      Putting money in a bank is a form of risk management. A startup can choose to: * Buy expensive office equipment or put it in a bank * Go on a hiring spree or put it in a bank * Acquire another company or put it in a bank * Put money in crypto or put it in a bank Shopping for a bank might mitigate a bit more of your risk. Putting it inside of a bank is low risk compared to the many things you can do with money. Hundreds of thousands of businesses store more than $250k in a bank and for most of them, the largest risk to their business is not their bank.
BoiledCabbage 4y ago
> Regulatory capture, it's called. Man, it does a lot of damage. It's not regulatory capture. It's plain and simple deregulation. It's the end result of all the people arguing that "federal regulations only slow innovation. Deregulate so we can be more efficient and profit." There were regulations in place, there were a group of people who like to get rid of regulation. They obliged. They weren't captured, it's practically their platform. At somepoint people will realize two things. We all live in a society together and thus need regulations to govern actions and interactions. These regulations are societal insurance. Yes you pay a little bit yearly that you could've used elsewhere for your profit, but they are necessary to avoid the contaigen when disaster strikes.
- lisasays 4y ago
  The thing is, it isn't "people" arguing that -- to an extent that would suffice influence policy, in any case. By itself, this belief contingent (and its effect on public policy) would be quite marginal. At the end of the day, it's lobbyists, PACs and think tanks connected to specific business interests who are able to work the system, and get these marginal political beliefs converted into legislation (and court appointments). That's how the term "regulatory capture" applies.
  - azinman2 4y ago
    And they convince millions of people it’s the right thing to do, so they keep getting voted in on it. It appeals to existing political mindsets. You can’t ignore the politicalization of it.
    - lisasays 4y ago
      That's exactly how they operate - by trying to convince everyone that it's the inevitable result of the groundswell of public opinion in favor of aggressive regulation. In reality, it isn't.
      - BoiledCabbage 4y ago
deleted 4y ago
[deleted]
quadrifoliate 4y ago
> If we lowly startup entrepreneurs can't trust institutions like banks reliably to provide their services, and we can't trust the government to do their part in maintaining that reliability, who can we trust? Oh great, another entrepreneur crying "Woe is me". Consider that your lowly regular employees have to make far more specific financial decisions every single year. - We have to choose health plan options that will govern our and our family's literal lives over the next year - We have to make specific retirement plan elections and understand market risks because our actual lives after retirement age depend upon them, since there are no such things as pensions any more - We have to figure out the tax implications of all of the above, which intersect in odd and complex ways ways (Why is my health plan linked to a tax-free retirement account, again? Figure it out!) - In addition to all this, if we ever happen to hold more than 250k in cash, we have to worry about the exact same thing here. Seriously though, if you do actually think that figuring all this risk out is a waste of money as a founder, make sure you provide optimization guides for your employees that go into details about optimizing the complex financial decisions that you make them do every year. Working on that might open your eyes to also looking more carefully at the institutions you bank with. > This regulatory capture is freakin' ridiculous and has to come to an end. True. But this is also true of all the stuff I mentioned earlier, especially taxes. Regulatory capture hurts lowly employees far worse and far harder than it hits entrepreneurs. Fixing one will help fix the other.
- OliverJones 4y ago
  I'm certainly not crying "Woe is me." Not at all. SVB, and other parts of the business, worked out very well indeed for us and our employees. Did scramble to make payroll a couple of times, but that was nothing to do with SVB. Why did we scramble to make payroll? Because employees, including founders, needed to feed our families etc. And, yeah, laws against stealing wages and all that. Basic honesty in business sometimes means taking personal risks. An investor / board member back then said "don't worry about it" when I brought up FDIC coverage limits upon their advice to dump the money at SVB. At any rate last Sunday the FDIC knuckled under to pressure from the Sand Hill Road folks and extended their insurance to all deposits, not just the first quarter megabuck owed to each depositor. SVB's shareholders are wiped out, and maybe some non-depositor people they owe money to will take a haircut. But the various startups will be OK.

NordSteve 4y ago

Startups have to do risk management all of the time -- it's a core activity of entrepreneurship. Can we trust this vendor? Is this new hire going to work out? Will this API vendor scale to what we need/be around in the future? Finance is no different. There are no "safe" investments, only varying levels of risk and reward. Mitigating the risk of a single bank failure locking up your $2MM raise is a couple hours of work. Only you can say whether mitigating that risk is worth the effort.

nouveaux 4y ago
Putting money in a bank is risk management.
- deleted 4y ago
  [deleted]
- sillybov3456 4y ago
  Respectfully, it's not. Choosing a bank is an aspect of risk management, the act of throwing all your money into whatever thing that calls itself a bank and is most convenient is not risk management, it's risky behavior. Risk management would be asking the question "should I be putting all my eggs in a basket that seems very tied to the tech economy / northern California real estate market / low interest rates?". Diversification would be trying to get the money you use to pay your tech workers invested in something as far away from tech as possible.
  - nouveaux 4y ago
    Putting money in a bank is a form of risk management. A startup can choose to: * Buy expensive office equipment or put it in a bank * Go on a hiring spree or put it in a bank * Acquire another company or put it in a bank * Put money in crypto or put it in a bank Shopping for a bank might mitigate a bit more of your risk. Putting it inside of a bank is low risk compared to the many things you can do with money. Hundreds of thousands of businesses store more than $250k in a bank and for most of them, the largest risk to their business is not their bank.

BoiledCabbage 4y ago

> Regulatory capture, it's called. Man, it does a lot of damage. It's not regulatory capture. It's plain and simple deregulation. It's the end result of all the people arguing that "federal regulations only slow innovation. Deregulate so we can be more efficient and profit." There were regulations in place, there were a group of people who like to get rid of regulation. They obliged. They weren't captured, it's practically their platform. At somepoint people will realize two things. We all live in a society together and thus need regulations to govern actions and interactions. These regulations are societal insurance. Yes you pay a little bit yearly that you could've used elsewhere for your profit, but they are necessary to avoid the contaigen when disaster strikes.

lisasays 4y ago
The thing is, it isn't "people" arguing that -- to an extent that would suffice influence policy, in any case. By itself, this belief contingent (and its effect on public policy) would be quite marginal. At the end of the day, it's lobbyists, PACs and think tanks connected to specific business interests who are able to work the system, and get these marginal political beliefs converted into legislation (and court appointments). That's how the term "regulatory capture" applies.
- azinman2 4y ago
  And they convince millions of people it’s the right thing to do, so they keep getting voted in on it. It appeals to existing political mindsets. You can’t ignore the politicalization of it.
  - lisasays 4y ago
    That's exactly how they operate - by trying to convince everyone that it's the inevitable result of the groundswell of public opinion in favor of aggressive regulation. In reality, it isn't.
    - BoiledCabbage 4y ago

deleted 4y ago

[deleted]

quadrifoliate 4y ago

> If we lowly startup entrepreneurs can't trust institutions like banks reliably to provide their services, and we can't trust the government to do their part in maintaining that reliability, who can we trust? Oh great, another entrepreneur crying "Woe is me". Consider that your lowly regular employees have to make far more specific financial decisions every single year. - We have to choose health plan options that will govern our and our family's literal lives over the next year - We have to make specific retirement plan elections and understand market risks because our actual lives after retirement age depend upon them, since there are no such things as pensions any more - We have to figure out the tax implications of all of the above, which intersect in odd and complex ways ways (Why is my health plan linked to a tax-free retirement account, again? Figure it out!) - In addition to all this, if we ever happen to hold more than 250k in cash, we have to worry about the exact same thing here. Seriously though, if you do actually think that figuring all this risk out is a waste of money as a founder, make sure you provide optimization guides for your employees that go into details about optimizing the complex financial decisions that you make them do every year. Working on that might open your eyes to also looking more carefully at the institutions you bank with. > This regulatory capture is freakin' ridiculous and has to come to an end. True. But this is also true of all the stuff I mentioned earlier, especially taxes. Regulatory capture hurts lowly employees far worse and far harder than it hits entrepreneurs. Fixing one will help fix the other.

OliverJones 4y ago
I'm certainly not crying "Woe is me." Not at all. SVB, and other parts of the business, worked out very well indeed for us and our employees. Did scramble to make payroll a couple of times, but that was nothing to do with SVB. Why did we scramble to make payroll? Because employees, including founders, needed to feed our families etc. And, yeah, laws against stealing wages and all that. Basic honesty in business sometimes means taking personal risks. An investor / board member back then said "don't worry about it" when I brought up FDIC coverage limits upon their advice to dump the money at SVB. At any rate last Sunday the FDIC knuckled under to pressure from the Sand Hill Road folks and extended their insurance to all deposits, not just the first quarter megabuck owed to each depositor. SVB's shareholders are wiped out, and maybe some non-depositor people they owe money to will take a haircut. But the various startups will be OK.