6 ms·

I'm not sure your founders are as "extremely" prudent as you claim them to be. For example, couldn't they have spread their funds throughout more banks instead

I'm not sure your founders are as "extremely" prudent as you claim them to be. For example, couldn't they have spread their funds throughout more banks instead of putting their eggs in one basket?

grugagag 4y ago
Apparently they did that on purpose to be better able get a view on the activity of the money they poured in. Someone on a different thread is pointing to the levers VCs had in SVB for this exact purpose.
- rmilk 4y ago
  Exactly. If you’re forced to use SVB because of your founders, you don’t have a recourse on the bank. But there is also a risk question that companies are responsible for that I see is glossed over. No, you shouldn’t have to spread your business accounts to limit them to 250k. But you must know it’s not insured above this, just like a money market account is not a guaranteed rate of return or even guaranteed against capital loss. I’m just spitballing, but for example what was the rate on a “money market” checking at SVB versus other larger national banks? If it was much higher, it immediately indicates higher risk in a business checking account at SVB to get those rates. You can see this way back with the old junk bond / Lincoln Savings fiasco of the 1980s, or with 2008 MBS, or CD accounts in early 2000s.
  - hgsgm 4y ago
    > forced to use SVB because of your founder Investor not founder.
masterjack 4y ago
Are you really suggesting they open up 20 different bank accounts? And not only pay the monthly account fees but also pay a bookkeeper to upload statements for all 20 banks into the accounting system? And have appropriate controls on all money movements? And float money between the accounts each time payroll or some large expense is run? And follow the financial results of all of those banks in order to find signs of weakness? Id rather be in a world where businesses don’t have to spend so much time playing games with their bank accounts and just trust that their money is safe, which is why the fdic needs to guarantee the deposits.
- QuercusMax 4y ago
  Services like this exist: https://www.investopedia.com/terms/c/certificate-of-deposit-account-registry-service.asp https://www.investopedia.com/terms/c/certificate-of-deposit-...
- FartyMcFarter 4y ago
  > Are you really suggesting they open up 20 different bank accounts? No. I said that putting all the money in one bank account is not extremely prudent, which seems obvious given the circumstances. I'm pretty sure that there are individuals paying attention to this, so I don't think it's too weird to ask businesses to do so as well.
- klipt 4y ago
  > And follow the financial results of all of those banks in order to find signs of weakness? Well no, if all your deposits are below the 250k fully insured limit, then you don't have to worry about the banks collapsing.
- shadowgovt 4y ago
  That sounds like just another cost of doing business. Companies RAID-stripe the data on their hard drives, they can pay somebody to spread the risk in their finances. (At a certain scale this eventually becomes inevitable. Google actually has a huge real estate and finances arm precisely because they have the kind of money pool that is impacted by things like nation-state failure and changes to the tax code in 50 states).
- rugaeiou 4y ago
  Just search for insured cash sweep accounts There are many many banks that offer this . It doesn't even have to be a TBTF Bank Infact, SVB itself offered and those funds are protected https://pilot.com/blog/svb-faq https://pilot.com/blog/svb-faq What about my cash sweep account? So, here’s the good thing about the cash sweep account: the assets held in the cash sweep account aren’t bank deposits or on SVB’s balance sheet—they’re held by a third-party custodian. So our understanding is you should be able to recover 100% of the funds there, regardless of what happens to the uninsured deposits at SVB.
idopmstuff 4y ago
So anybody who raises money should put a max of 250k into any given bank? My CEO should spend his time managing 20 different bank accounts? I just think that if we look at it from the big picture - what's best for the country/society/etc. - that we're collectively much better off if a business that puts its money into a decades-old, reputable financial institution can count on it being there the next week. (Also I do feel like I should clarify that I'm using my company as a kind of general example... I have no idea where our money is stored and I'm on paternity leave at the moment so just going to hang out with my new kid and hope this all works out).
- QuercusMax 4y ago
  There are services that will spread balances across tons of accounts. The problem is that YC made people keep all their startup's money only in SVB instead of spreading it around.
  - idopmstuff 4y ago
    But is that a good thing for society? Adding a rent-seeking middleman that doesn't actually contribute anything except a technical workaround for an issue that can be solved directly by the governemnt?
    - scottLobster 4y ago
      It's called risk management, it costs money and it's something anyone running a business should be familiar with. Don't run your company like a multimillion dollar lemonade stand.
  - eldritch_4ier 4y ago
    YC doesn’t make you keep your money anywhere, they don’t even suggest any place or even say anything about startup banking (unless you were to ask one of the partners for advice). Even a cynical take would suggest they’d prioritize their portcos who launched banks for startups (like Brex), but even still in my experience they haven’t even done that.
pbourke 4y ago
Would you suggest that every small business in the US with working capital over the FDIC limits do something like this? It would be a massive waste of resources. FDIC insurance exists to stabilize this part of the financial system.
- FartyMcFarter 4y ago
  Yes, I would definitely suggest and recommend for businesses to not have a single point of failure for something as important as their working capital.
- rmilk 4y ago
  There is a risk question that companies are responsible for that I see is glossed over. No, you shouldn’t have to spread your business accounts to limit them to 250k. But you must know it’s not insured above this, just like a money market account is not a guaranteed rate of return or even guaranteed against capital loss. Have lines of credit with alternate banks, or insurance on that additional money. Or, just like when the market tanks, you suck it up and get back 80% of your capital on deposit because you couldn’t foresee a money market checking account could lose capital even though it’s spelled out on EVERY SINGLE statement and offering letter from the bank.
- lotsofpulp 4y ago
  > FDIC insurance exists to stabilize this part of the financial system. Up to $250k per account holder per bank.
  - pbourke 4y ago
    Yes, that is the letter of the law. The intent, given that the FDIC emerged from the Great Depression, is to prevent bank runs. Most banks with a large retail deposit base are immune from bank runs. SVB is unique in that it didn’t have a large retail deposit base yet also had a bimodal customer distribution (financially sophisticated VCs and later-stage startups/enterprises and early stage startups which have the financial sophistication of your local auto mechanic). No acquiring bank will want to touch SVB because of its lack of retail deposits - the risk of account holders fleeing at the earliest opportunity is very high. That forecloses one of the FDIC’s main tools for resolving a bank collapse - especially one of this magnitude. So we have a very unique situation here: a large mostly commercial bank that, unlike most large commercial banks, has a bunch of mom-and-pop level customers. I don’t know what the solution is, but hopefully it will go in the direction of minimizing impact on these small businesses.
moomoo11 4y ago
should have put it into gold right?

I'm not sure your founders are as "extremely" prudent as you claim them to be. For example, couldn't they have spread their funds throughout more banks instead of putting their eggs in one basket?

grugagag 4y ago

Apparently they did that on purpose to be better able get a view on the activity of the money they poured in. Someone on a different thread is pointing to the levers VCs had in SVB for this exact purpose.

rmilk 4y ago
Exactly. If you’re forced to use SVB because of your founders, you don’t have a recourse on the bank. But there is also a risk question that companies are responsible for that I see is glossed over. No, you shouldn’t have to spread your business accounts to limit them to 250k. But you must know it’s not insured above this, just like a money market account is not a guaranteed rate of return or even guaranteed against capital loss. I’m just spitballing, but for example what was the rate on a “money market” checking at SVB versus other larger national banks? If it was much higher, it immediately indicates higher risk in a business checking account at SVB to get those rates. You can see this way back with the old junk bond / Lincoln Savings fiasco of the 1980s, or with 2008 MBS, or CD accounts in early 2000s.
- hgsgm 4y ago
  > forced to use SVB because of your founder Investor not founder.

masterjack 4y ago

Are you really suggesting they open up 20 different bank accounts? And not only pay the monthly account fees but also pay a bookkeeper to upload statements for all 20 banks into the accounting system? And have appropriate controls on all money movements? And float money between the accounts each time payroll or some large expense is run? And follow the financial results of all of those banks in order to find signs of weakness? Id rather be in a world where businesses don’t have to spend so much time playing games with their bank accounts and just trust that their money is safe, which is why the fdic needs to guarantee the deposits.

QuercusMax 4y ago
Services like this exist: https://www.investopedia.com/terms/c/certificate-of-deposit-account-registry-service.asp https://www.investopedia.com/terms/c/certificate-of-deposit-...
FartyMcFarter 4y ago
> Are you really suggesting they open up 20 different bank accounts? No. I said that putting all the money in one bank account is not extremely prudent, which seems obvious given the circumstances. I'm pretty sure that there are individuals paying attention to this, so I don't think it's too weird to ask businesses to do so as well.
klipt 4y ago
> And follow the financial results of all of those banks in order to find signs of weakness? Well no, if all your deposits are below the 250k fully insured limit, then you don't have to worry about the banks collapsing.
shadowgovt 4y ago
That sounds like just another cost of doing business. Companies RAID-stripe the data on their hard drives, they can pay somebody to spread the risk in their finances. (At a certain scale this eventually becomes inevitable. Google actually has a huge real estate and finances arm precisely because they have the kind of money pool that is impacted by things like nation-state failure and changes to the tax code in 50 states).
rugaeiou 4y ago
Just search for insured cash sweep accounts There are many many banks that offer this . It doesn't even have to be a TBTF Bank Infact, SVB itself offered and those funds are protected https://pilot.com/blog/svb-faq https://pilot.com/blog/svb-faq What about my cash sweep account? So, here’s the good thing about the cash sweep account: the assets held in the cash sweep account aren’t bank deposits or on SVB’s balance sheet—they’re held by a third-party custodian. So our understanding is you should be able to recover 100% of the funds there, regardless of what happens to the uninsured deposits at SVB.

idopmstuff 4y ago

So anybody who raises money should put a max of 250k into any given bank? My CEO should spend his time managing 20 different bank accounts? I just think that if we look at it from the big picture - what's best for the country/society/etc. - that we're collectively much better off if a business that puts its money into a decades-old, reputable financial institution can count on it being there the next week. (Also I do feel like I should clarify that I'm using my company as a kind of general example... I have no idea where our money is stored and I'm on paternity leave at the moment so just going to hang out with my new kid and hope this all works out).

QuercusMax 4y ago
There are services that will spread balances across tons of accounts. The problem is that YC made people keep all their startup's money only in SVB instead of spreading it around.
- idopmstuff 4y ago
  But is that a good thing for society? Adding a rent-seeking middleman that doesn't actually contribute anything except a technical workaround for an issue that can be solved directly by the governemnt?
  - scottLobster 4y ago
    It's called risk management, it costs money and it's something anyone running a business should be familiar with. Don't run your company like a multimillion dollar lemonade stand.
- eldritch_4ier 4y ago
  YC doesn’t make you keep your money anywhere, they don’t even suggest any place or even say anything about startup banking (unless you were to ask one of the partners for advice). Even a cynical take would suggest they’d prioritize their portcos who launched banks for startups (like Brex), but even still in my experience they haven’t even done that.

pbourke 4y ago

Would you suggest that every small business in the US with working capital over the FDIC limits do something like this? It would be a massive waste of resources. FDIC insurance exists to stabilize this part of the financial system.

FartyMcFarter 4y ago
Yes, I would definitely suggest and recommend for businesses to not have a single point of failure for something as important as their working capital.
rmilk 4y ago
There is a risk question that companies are responsible for that I see is glossed over. No, you shouldn’t have to spread your business accounts to limit them to 250k. But you must know it’s not insured above this, just like a money market account is not a guaranteed rate of return or even guaranteed against capital loss. Have lines of credit with alternate banks, or insurance on that additional money. Or, just like when the market tanks, you suck it up and get back 80% of your capital on deposit because you couldn’t foresee a money market checking account could lose capital even though it’s spelled out on EVERY SINGLE statement and offering letter from the bank.
lotsofpulp 4y ago
> FDIC insurance exists to stabilize this part of the financial system. Up to $250k per account holder per bank.
- pbourke 4y ago
  Yes, that is the letter of the law. The intent, given that the FDIC emerged from the Great Depression, is to prevent bank runs. Most banks with a large retail deposit base are immune from bank runs. SVB is unique in that it didn’t have a large retail deposit base yet also had a bimodal customer distribution (financially sophisticated VCs and later-stage startups/enterprises and early stage startups which have the financial sophistication of your local auto mechanic). No acquiring bank will want to touch SVB because of its lack of retail deposits - the risk of account holders fleeing at the earliest opportunity is very high. That forecloses one of the FDIC’s main tools for resolving a bank collapse - especially one of this magnitude. So we have a very unique situation here: a large mostly commercial bank that, unlike most large commercial banks, has a bunch of mom-and-pop level customers. I don’t know what the solution is, but hopefully it will go in the direction of minimizing impact on these small businesses.

moomoo11 4y ago

should have put it into gold right?