5 ms·

I keep seeing this and I’m sorry, it’s just silly. My 12-person startup gets a $10M series A and my first priority should be to find 40 banks to put it in? CDs

by wrs 4y ago

I keep seeing this and I’m sorry, it’s just silly. My 12-person startup gets a $10M series A and my first priority should be to find 40 banks to put it in? CDs don’t work — my job is to spend that money in the next 18-24 months, not save it. Edit: And the people saying the “CFO” should have done better…at that point, one person is probably still founder, CTO, CHRO, CFO, snack buyer, and janitor combined (been there).

MrMan 4y ago
yes startups are a rickety vessel and they usually fail, we shouldn't pay for that
mlyle 4y ago
> My 12-person startup gets a $10M series A and my first priority should be to find 40 banks to put it in? CDs don’t work — my job is to spend that money in the next 18-24 months, not save it. You just ask your bank to place the money using IntraFi. You can get a little more interest by locking up some of the money on a 9-12mo ladder, which makes sense if you have 18 mos of runway. If you have an unanticipated expense or opportunity and need to spend some early, it's a small penalty to get the money out-- usually 6 months of interest, so as long as the probability of having to spend a bunch more is low you're ahead.
- ithkuil 4y ago
  Sorry, dumb question, I'm just a software engineer: If it's so easy to get it right, why so many companies got it wrong? Could it be because startups don't usually start by hiring people with a lot of expertise in finance?
  - mlyle 4y ago
    I think people mostly just ignored the risk. Venture capitalists provide banking advice to the companies they fund, and this isn't on the list of things most mention. Now we're reminded why it's a best practice. I think it's hubris to think that you can have tens of millions of dollars and can ignore vital things with it (account security, systemic risk from counterparties, etc).
  - itronitron 4y ago
    Most startups aren't around long enough for it to be a problem.
Gwypaas 4y ago
Remove the single point of failure in having one bank. Put the money not needed for day-to-day operations into short-term liquid government-based financial instruments like t-bills. If you still think the risk is too high, pay the premium for CDARs or insurance. It is not about removing all risks. It is about making it acceptable. If your primary bank fails, you can manage it like any other strategic business risk.
- wrs 4y ago
  The risk of a top 20 bank failure is small compared to the myriad other existential risks being managed by a new startup. We still don’t know if this new failure will even result in depositor losses (though for some reason HN is full of people who seem to want them). I looked at the FDIC database and it seems depositor losses are quite rare. It would be great if VCs would provide simple cash management services to their fledgling investments, though.
  - mlyle 4y ago
    > It would be great if VCs would provide simple cash management services to their fledgling investments, though. It was dirt simple to just use IntraFi. You just say you want it, and sign the form. If you want a little more interest income, you do some cash flow planning and check the box for laddering.
    - wrs 4y ago
      You do have to know it exists, though. Remember the CFO at this hypothetical startup is probably really good at Python, not treasury management. And later on if you need something like a revolving AR credit line, you can’t use your IntraFi balance to collateraize that.
      - mlyle 4y ago
        OK, but one of the whole points of why you take venture money is to leverage experience and best practices. Our VCs introduced our bankers and suggested things we should do.
hugs 4y ago
"Find 40 banks" Sadly, that's your job now. Alternatively, I could imagine more VCs from now on will stop giving out the whole round in one wire. They'll start wiring money only in small traunches. You'll legally have claim to the whole $10M, but will be moving to a "just in time" system so you can make payroll. Or we could raise FDIC limit, but politically, that sounds untenable right now.
dragonwriter 4y ago
> My 12-person startup gets a $10M series A and my first priority should be to find 40 banks to put it in? Your first priority should be to assure the safety of wherever you put it. Whether that is diversification to the point where all the funds are insured or inquiry into the finances of the institution where you plan on putting all the eggs, or a mixture of lesser diversification and diligence, it should be done. > my job is to spend that money in the next 18-24 months, not save it. Well, your first job is to make sure that money is still there when you need to spend it, otherwise, you aren’t going to be spending it.
rkhacker 4y ago
Live and learn - now you know the risk involved and cannot escape by saying you did not know.

by wrs 4y ago

MrMan 4y ago

yes startups are a rickety vessel and they usually fail, we shouldn't pay for that

mlyle 4y ago

> My 12-person startup gets a $10M series A and my first priority should be to find 40 banks to put it in? CDs don’t work — my job is to spend that money in the next 18-24 months, not save it. You just ask your bank to place the money using IntraFi. You can get a little more interest by locking up some of the money on a 9-12mo ladder, which makes sense if you have 18 mos of runway. If you have an unanticipated expense or opportunity and need to spend some early, it's a small penalty to get the money out-- usually 6 months of interest, so as long as the probability of having to spend a bunch more is low you're ahead.

ithkuil 4y ago
Sorry, dumb question, I'm just a software engineer: If it's so easy to get it right, why so many companies got it wrong? Could it be because startups don't usually start by hiring people with a lot of expertise in finance?
- mlyle 4y ago
  I think people mostly just ignored the risk. Venture capitalists provide banking advice to the companies they fund, and this isn't on the list of things most mention. Now we're reminded why it's a best practice. I think it's hubris to think that you can have tens of millions of dollars and can ignore vital things with it (account security, systemic risk from counterparties, etc).
- itronitron 4y ago
  Most startups aren't around long enough for it to be a problem.

Gwypaas 4y ago

Remove the single point of failure in having one bank. Put the money not needed for day-to-day operations into short-term liquid government-based financial instruments like t-bills. If you still think the risk is too high, pay the premium for CDARs or insurance. It is not about removing all risks. It is about making it acceptable. If your primary bank fails, you can manage it like any other strategic business risk.

wrs 4y ago
The risk of a top 20 bank failure is small compared to the myriad other existential risks being managed by a new startup. We still don’t know if this new failure will even result in depositor losses (though for some reason HN is full of people who seem to want them). I looked at the FDIC database and it seems depositor losses are quite rare. It would be great if VCs would provide simple cash management services to their fledgling investments, though.
- mlyle 4y ago
  > It would be great if VCs would provide simple cash management services to their fledgling investments, though. It was dirt simple to just use IntraFi. You just say you want it, and sign the form. If you want a little more interest income, you do some cash flow planning and check the box for laddering.
  - wrs 4y ago
    You do have to know it exists, though. Remember the CFO at this hypothetical startup is probably really good at Python, not treasury management. And later on if you need something like a revolving AR credit line, you can’t use your IntraFi balance to collateraize that.
    - mlyle 4y ago
      OK, but one of the whole points of why you take venture money is to leverage experience and best practices. Our VCs introduced our bankers and suggested things we should do.

hugs 4y ago

"Find 40 banks" Sadly, that's your job now. Alternatively, I could imagine more VCs from now on will stop giving out the whole round in one wire. They'll start wiring money only in small traunches. You'll legally have claim to the whole $10M, but will be moving to a "just in time" system so you can make payroll. Or we could raise FDIC limit, but politically, that sounds untenable right now.

dragonwriter 4y ago

> My 12-person startup gets a $10M series A and my first priority should be to find 40 banks to put it in? Your first priority should be to assure the safety of wherever you put it. Whether that is diversification to the point where all the funds are insured or inquiry into the finances of the institution where you plan on putting all the eggs, or a mixture of lesser diversification and diligence, it should be done. > my job is to spend that money in the next 18-24 months, not save it. Well, your first job is to make sure that money is still there when you need to spend it, otherwise, you aren’t going to be spending it.

rkhacker 4y ago

Live and learn - now you know the risk involved and cannot escape by saying you did not know.