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Has there been any good reporting on why so many tech startups had large amounts of uninsured cash deposits? This has been a solved problem for a long time. ht

Has there been any good reporting on why so many tech startups had large amounts of uninsured cash deposits? This has been a solved problem for a long time. https://www.intrafi.com/solutions/depositors/ https://www.intrafi.com/solutions/depositors/ https://americandeposits.com/how-it-works/ https://americandeposits.com/how-it-works/ There's no reason for a small business to have any uninsured cash deposits. Is this a corruption story? Are they all just that incompetent?

swatcoder 4y ago
It’s hearsay, honestly, but I heard that participating in their venture loan program involved keeping your deposits exclusively with them as a form of collateral. For hyperoptimistic founders and VC’s, the opportunity for loans where they aren’t otherwise available may have thrown responsible banking practices out the window. It would fit the character of the startup industry, seems reasonable from a lending standpoint, and explains why VC’s are now acting like they got caught with their pants down, so I’m curious of there’s truth to it.
objclxt 4y ago
> Is this a corruption story? Are they all just that incompetent? I have heard through the grapevine that some startups were locked into varying exclusivity deals with SVB.
andygcook 4y ago
Anecdotally, most founders are extremely busy and much of their financial success is in finding product/market-fit to maximize equity value. Therefore, learning about maximizing interest and managing dozens of bank accounts to minimize insolvency risk didn’t seem like a good use of time. Parking cash in SVB, which had been around for 40 years (with some investors even requiring startups to bank with them), seemed like a safe, secure option. Obviously, hindsight is 20/20 here.
- lordnacho 4y ago
  Sure but don't they hire a CFO who knows what to do with financial instruments?
  - flappyeagle 4y ago
    Many startups don’t have CFOs

swatcoder 4y ago

It’s hearsay, honestly, but I heard that participating in their venture loan program involved keeping your deposits exclusively with them as a form of collateral. For hyperoptimistic founders and VC’s, the opportunity for loans where they aren’t otherwise available may have thrown responsible banking practices out the window. It would fit the character of the startup industry, seems reasonable from a lending standpoint, and explains why VC’s are now acting like they got caught with their pants down, so I’m curious of there’s truth to it.

objclxt 4y ago

> Is this a corruption story? Are they all just that incompetent? I have heard through the grapevine that some startups were locked into varying exclusivity deals with SVB.

andygcook 4y ago

Anecdotally, most founders are extremely busy and much of their financial success is in finding product/market-fit to maximize equity value. Therefore, learning about maximizing interest and managing dozens of bank accounts to minimize insolvency risk didn’t seem like a good use of time. Parking cash in SVB, which had been around for 40 years (with some investors even requiring startups to bank with them), seemed like a safe, secure option. Obviously, hindsight is 20/20 here.

lordnacho 4y ago
Sure but don't they hire a CFO who knows what to do with financial instruments?
- flappyeagle 4y ago
  Many startups don’t have CFOs