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Or better yet, keep less than 250k at each institution.
by shkkmo 4y ago
Or better yet, keep less than 250k at each institution.
- mikeyouse 4y agoThe amount of coordination / bank reconciliation / overhead that would add is absolutely not worth it. It’s completely normal to have $10M+ in cash in a checking account for these companies, if I need to make payroll of $500k twice per month + pay vendors, accounts will necessarily have much more than the FDIC limit. I could find 40 community banks and shift funds around constantly or I could just put it all in JPM and actually worry about running my business.
- makestuff 4y agoAlso the big banks will do overnight sweeps as well to protect customers over the FDIC limit. I’m not sure if smaller banks do this as well, but I know JPM will do it for large customers. From the brokerage side interactive brokers will do it on any cash sitting in your account as well if you opt in.
- scottLobster 4y agoOr you could split it between two banks and reduce your exposure by half. Four banks and you reduce it by 75%. That way a deathblow turns into a setback, and overhead is minimal. There are cash management services that will do this for you if you can't be personally bothered. Running a business means doing the maintenance keeping ship afloat as well as charting a course to exotic destinations.
- mikeyouse 4y agoThose probabilities assume there’s an equal likelihood of going under for each bank which certainly isn’t true. I could just move it to half at WFB and half at JPM and cut my risk by substantially more than spreading it across random community banks.
- gnicholas 4y agoIf I split between SVB and FRB, have I reduced my exposure by half? I agree with GP that using a too-big-to-fail bank seems to be the more practical option.
- adastra22 4y agoThis is HN. Who else had a funding term sheet which required the ongoing and exclusive use of SVB for deposits? I did.
- gnicholas 4y agoWow. What was the putative reason for this clause? It's interesting that a VC would have such a strong incentive to pressure portfolio companies to keep their money at one specific bank.
- luckylion 4y agoInvested in the bank? Got a sweet personal deal with the bank in return for pinning their investments to the bank? It certainly sounds like they had some side-things going on, otherwise hard to believe they'd not just recommend fiscally unsound practices to their portfolio companies, but even require them to.
- gnicholas 4y agoIf practices like these are widespread, it could explain why some VCs are pushing hard for a government backstop. It would be embarrassing to them if these clauses came to light, and they could arguably be on the hook for damages in lawsuits by shareholders of their portfolio companies.
- BadCookie 4y agoIt also seems possible that some VCs have their personal funds tied up in SVB.
- adastra22 4y agoA LOT of them do. And late-stage founders as well. You know how people like Elon cash out their shares via collateralized loans? What bank do you think processes those loans? And SVB really didn't like to be transactional--they work hard to make sure your SVB collateralized loan is linked to a SVB checking account and a SVB founder-shares-backed mortgage for your 5,000 sqft mansion in Los Altos Hills.