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Being focused on his startup instead of maximizing the yield of these $35M allowed him to turn it into a $5.5Bn company.

by csomar 4y ago

vinay_ys 4y ago
This. It applies in personal life too. In the post covid world, I find many young engineers fall into the trap of squeezing more yield out of their meagre savings early in their career through financial engineering rather than focusing on their personal development and growing in their actual professional lives. All the amateur investors who made big returns in the 2020-22 period and thought they figured it out will now have a hard time making sense of the markets in the new regime of high interest rates.
- ashwagary 4y ago
  >All the amateur investors who made big returns in the 2020-22 period and thought they figured it out Chasing big returns generally leads to massive losses so I cant fault people for sitting in cash but I dont recommend taking inflation lightly. The least one should do is beat that hurdle rate and conserve value.
- dcow 4y ago
  But it’s not bad to diversify risk early on and have a plan for that. High yield savings accounts and treasury notes are standard practice. We’re not talking about founders taking moonshots in the market. We’re talking about $35MM in a bank account that doesn't even match inflation.
  - dcow 4y ago
    To put that into perspective. That's $1MM a year (at %3 inflation) going into the toilet just because you don't want to do some minimal cash management. You could hire a CFO for that price and it would pay for itself 3 times over. I mean I get the vibe and totally agree that you don't want to overthink things. But I also think it's easy to underestimate the value you're leaving on the table and the risk you're exposing yourself to by not giving it any thought.
- ygouzerh 4y ago
  Definitely! They forgot that there are two type of revenues for a company, and that it can be applied for personal finance as well : Operational revenues : the real job, the thing that is making money. The yield on the operational one is Financial revenues : cash sitting around non-invested yet into operations, waiting for the next project to invest in. The yield on the operational revenues is much higher and the investment in it could be transposed as for example : spending for some certifications, go to online or physical classes, etc
zamnos 4y ago
With the resulting 15,714% return over 11 years, the guy could be forgiven for getting 0% on cash on the $35m at the time. Theres a real opportunity cost if you were to spend your time optimizing your return on $35m of cash via financial instruments instead of running your startup.
remus 4y ago
> Being focused on his startup instead of maximizing the yield of these $35M allowed him to turn it into a $5.5Bn company. In this case. I'd bet there are more than a few startups who would have survived if they'd spent a few hours on the phone with their bank to help manage funding cash more efficiently.
gen220 4y ago
The cringe isn't that he failed to maximize yield, it's that he failed to protect that $35m from tail risks, by parking the lion's share of it in T-bills. "Maximizing yield" would mean earning a few % annually in interest. "Minimizing insolvency risk" means paying a few % to ensure it doesn't go to (effectively) zero in an SVB-like situation, and requires literally a day or two of work. However, it's difficult to fault Mitchell for knowing these things. It sounds like the VP of Finance was brought in at the right time (Series B), and did the right things. With what Mitchell knows now, and especially given the industry's recent experience at SVB, I'd guess that he would advise any young founders he works with to cover this base at their own companies even earlier than he did.
dcow 4y ago
There’s a difference between maximizing yields and diversifying risk. I’m talking about diversifying risk. The yield is the company’s equity.

Being focused on his startup instead of maximizing the yield of these $35M allowed him to turn it into a $5.5Bn company.

by csomar 4y ago

Being focused on his startup instead of maximizing the yield of these $35M allowed him to turn it into a $5.5Bn company.

vinay_ys 4y ago

This. It applies in personal life too. In the post covid world, I find many young engineers fall into the trap of squeezing more yield out of their meagre savings early in their career through financial engineering rather than focusing on their personal development and growing in their actual professional lives. All the amateur investors who made big returns in the 2020-22 period and thought they figured it out will now have a hard time making sense of the markets in the new regime of high interest rates.

ashwagary 4y ago
>All the amateur investors who made big returns in the 2020-22 period and thought they figured it out Chasing big returns generally leads to massive losses so I cant fault people for sitting in cash but I dont recommend taking inflation lightly. The least one should do is beat that hurdle rate and conserve value.
dcow 4y ago
But it’s not bad to diversify risk early on and have a plan for that. High yield savings accounts and treasury notes are standard practice. We’re not talking about founders taking moonshots in the market. We’re talking about $35MM in a bank account that doesn't even match inflation.
- dcow 4y ago
  To put that into perspective. That's $1MM a year (at %3 inflation) going into the toilet just because you don't want to do some minimal cash management. You could hire a CFO for that price and it would pay for itself 3 times over. I mean I get the vibe and totally agree that you don't want to overthink things. But I also think it's easy to underestimate the value you're leaving on the table and the risk you're exposing yourself to by not giving it any thought.
ygouzerh 4y ago
Definitely! They forgot that there are two type of revenues for a company, and that it can be applied for personal finance as well : Operational revenues : the real job, the thing that is making money. The yield on the operational one is Financial revenues : cash sitting around non-invested yet into operations, waiting for the next project to invest in. The yield on the operational revenues is much higher and the investment in it could be transposed as for example : spending for some certifications, go to online or physical classes, etc

zamnos 4y ago

With the resulting 15,714% return over 11 years, the guy could be forgiven for getting 0% on cash on the $35m at the time. Theres a real opportunity cost if you were to spend your time optimizing your return on $35m of cash via financial instruments instead of running your startup.

remus 4y ago

> Being focused on his startup instead of maximizing the yield of these $35M allowed him to turn it into a $5.5Bn company. In this case. I'd bet there are more than a few startups who would have survived if they'd spent a few hours on the phone with their bank to help manage funding cash more efficiently.

gen220 4y ago

The cringe isn't that he failed to maximize yield, it's that he failed to protect that $35m from tail risks, by parking the lion's share of it in T-bills. "Maximizing yield" would mean earning a few % annually in interest. "Minimizing insolvency risk" means paying a few % to ensure it doesn't go to (effectively) zero in an SVB-like situation, and requires literally a day or two of work. However, it's difficult to fault Mitchell for knowing these things. It sounds like the VP of Finance was brought in at the right time (Series B), and did the right things. With what Mitchell knows now, and especially given the industry's recent experience at SVB, I'd guess that he would advise any young founders he works with to cover this base at their own companies even earlier than he did.

dcow 4y ago

There’s a difference between maximizing yields and diversifying risk. I’m talking about diversifying risk. The yield is the company’s equity.