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HOW do you have hundreds of portfolio companies with uninsured millions in a bank. Please can some venture capital expert explain? Tell me it's not just hubris

by dpweb 4y ago

HOW do you have hundreds of portfolio companies with uninsured millions in a bank. Please can some venture capital expert explain? Tell me it's not just hubris.

r3trohack3r 4y ago
Can't speak for everyone. But a train of thought I've heard from founders for years (when I've suggested moving their huge pile of investment money into something other than a bank account) goes something like this: We are not a portfolio management company. We aren't here to manage investments, we are here to build something of value: our startup. The money that is invested in us is best spent on _us_. They view us as a good investment, and we view ourselves as the best possible return on our time and money. We are all on in our venture and our outcome is either 0 or 1, we are going to be the 1, so every dollar we get is best invested in ourselves and not [X]. No other investment will yield the same return as our outcome if the promises we've made to ourselves and our investors hold true. So they park their money in a bank account, use that to calculate runway, and treat that runway as an ongoing investment in their startup. The bank losing their runway wasn't really a substantial risk compared to the other existential risks a startup faces on a daily basis - at least not until last week.
kaitrain87 4y ago
My understanding is that when people refer to deposits being insured in America they are nearly always referring to the FIDC insuring $250k on deposits (not for values greater than that amount, and not for stocks etc). Is it common practice for other banks to insure deposits more than what SVB? I keep hearing the 'how could they not have insured X% of their accounts'. That question adds to the hysteria if most banks wouldn't hold insurance if they had those clients. There isn't a lot of reporting separating whether SVB was underinsured or whether the only difference is that other banks have a lot of individual depositors vs catering for businesses.
caycep 4y ago
Might be a basic question from a STEM nerd with not a lot of finance background, but what are "insured" millions held in? Special class of corporate accounts?
- selectodude 4y ago
  The bank (every single bank) pays the FDIC a fee on every insured bank account. The FDIC puts all that money into a bucket and pays out from it whenever a bank fails. They also have a line of credit with the Federal Reserve that they can draw on if the bucket isn't large enough. So the FDIC pays out everybody up to $250k, closes the bank, liquidates the assets, and then pays out the balances above $250k until they run out of money.
- rashkov 4y ago
  Sweep accounts, is one answer I’ve seen floating around
  - rashkov 4y ago
    Some other suggestions here, for personal account holders who are fortunate enough to have that much cash: https://archive.ph/tyCy5 https://archive.ph/tyCy5

by dpweb 4y ago

HOW do you have hundreds of portfolio companies with uninsured millions in a bank. Please can some venture capital expert explain? Tell me it's not just hubris.

r3trohack3r 4y ago

Can't speak for everyone. But a train of thought I've heard from founders for years (when I've suggested moving their huge pile of investment money into something other than a bank account) goes something like this: We are not a portfolio management company. We aren't here to manage investments, we are here to build something of value: our startup. The money that is invested in us is best spent on _us_. They view us as a good investment, and we view ourselves as the best possible return on our time and money. We are all on in our venture and our outcome is either 0 or 1, we are going to be the 1, so every dollar we get is best invested in ourselves and not [X]. No other investment will yield the same return as our outcome if the promises we've made to ourselves and our investors hold true. So they park their money in a bank account, use that to calculate runway, and treat that runway as an ongoing investment in their startup. The bank losing their runway wasn't really a substantial risk compared to the other existential risks a startup faces on a daily basis - at least not until last week.

kaitrain87 4y ago

My understanding is that when people refer to deposits being insured in America they are nearly always referring to the FIDC insuring $250k on deposits (not for values greater than that amount, and not for stocks etc). Is it common practice for other banks to insure deposits more than what SVB? I keep hearing the 'how could they not have insured X% of their accounts'. That question adds to the hysteria if most banks wouldn't hold insurance if they had those clients. There isn't a lot of reporting separating whether SVB was underinsured or whether the only difference is that other banks have a lot of individual depositors vs catering for businesses.

caycep 4y ago

Might be a basic question from a STEM nerd with not a lot of finance background, but what are "insured" millions held in? Special class of corporate accounts?

selectodude 4y ago
The bank (every single bank) pays the FDIC a fee on every insured bank account. The FDIC puts all that money into a bucket and pays out from it whenever a bank fails. They also have a line of credit with the Federal Reserve that they can draw on if the bucket isn't large enough. So the FDIC pays out everybody up to $250k, closes the bank, liquidates the assets, and then pays out the balances above $250k until they run out of money.
rashkov 4y ago
Sweep accounts, is one answer I’ve seen floating around
- rashkov 4y ago
  Some other suggestions here, for personal account holders who are fortunate enough to have that much cash: https://archive.ph/tyCy5 https://archive.ph/tyCy5