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Comment by threeseed | Hacker News Reader

> Having your bank account randomly disappear isn't one of the risks that anyone should have to take.

But that is the risk founders chose when they put their money in (a) any bank and (b) specifically SVB.

Your money is only insured to $250k. SVB had no CRO, lobbied against regulation, made no efforts to comply with Basel 3 and was engaging in risky bets that many had previously warned about.

CEOs have a fudiciary responsibility to understand and mitigate risks. And expecting taxpayers to bail you out (either directly or indirectly) when your incompetence causes harm is simply not fair.

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This is a very weird blame shift. At 250k/account insured suddenly it's a CEOs fiduciary incompetence that a seed round isn't distributed amongst 16 banks?

Or just put into T-Bills, which private individuals can do from their phones.

Or pay someone/some company to do it.

You pay for AWS because you don’t feel like managing hardware, why just assume you can manage 10s of millions of dollars?

Except people that owned T-Bills that they bought through SVB also lost access to their money.

Should they buy the T-Bills and hold the actual certificates under their mattress?

> Except people that owned T-Bills that they bought through SVB also lost access to their money.

I don't think that's the case, though I may be wrong and would appreciate correction if so. Anyone who held T-Bills at SVB as a broker should have been able to transfer them to another broker at no loss (but at a small delay), and the remaining $250k in their checking account should have been available within one business day.

No whether you have $1 in the bank or $100 million is irrelevant.

Your job is to understand and mitigate financial risk as is required by law.

And in this case there are many options for managing this risk other than splitting it up manually into multiple bank accounts. Speaking with a financial advisor would help with this.

There’s so much victim blaming in this comments section. I’m amazed.

The real victims in all of this are the taxpayers who will cover the costs.

CEOs who should have known better are not victims.

Taxpayers are not covering any cost. The banks will pay for it via potentially higher FDIC insurance premiums. It’s possible they pass that on to customers, but there’s no direct link here.

Um, yes? If you have several million dollars of deposits you should absolutely split them among a series of banks as well as money market funds. This is why you need to find a competent banker who can give you sound financial advice.

You don't need 16 banks to eliminate all risk. You need one bank and a treasurydirect account.

Anybody, including corporations and partnerships, can safely park excess cash at treasurydirect.gov. Buy short term treasuries and time the redemptions to coincide with next month's payrolls. The shortest bills are 4 weeks and they're paying like 4% right now.

I honestly don't understand why more people don't do it.

Treasurydirect is great and everything you say is true, but the poor user experience and the commonly reported difficulty involved in getting help if there is a problem make it more appropriate for personal finance than business, I would think.

More generally the approach of using a cash sweep account in conjunction with t-bills held with a custodian bank seems like pretty sane advice. I don't think I'd emphasize "one bank," but otherwise, sure.

lol @ the hackernews commentariat learning that the ideal CEO isn't just some ascendant version of a rockstar coder that makes gantt charts.

> suddenly it's a CEOs fiduciary incompetence that a seed round isn't distributed amongst 16 banks

Yes. There's no "suddenly" to it - you're describing well-established fiduciary responsibilities. A CEO's responsibility is to delegate those tasks to someone like a CFO, who _absolutely should_ incorporate a strategy that balances liquidity with stability. The CFO also has a responsibility to see just what, exactly, a bank is doing with their deposits and make a determination about the associated risk. And yes, it is very normal to park money in various accounts and instruments as part of that strategy.

It is deeply distressing that half the comments here and abroad think this is some absurd, unattainable standard instead of the operative norm for the other 90% of the economy that doesn't get treated like a miracle baby for simply existing. You're not running a lemonade stand, and witnessing self-anointed "innovators" screech for a bailout because they somehow accrued millions of dollars in investments without ever learning about private deposit insurance or Cash Sweep or T-bills goes a long way to explaining why the majority of these goofs fashioned their Twitter bios into graveyards for failed ventures.

Look, I get that in hindsight the "of course you should do this thing that historically you would never think of" thing makes sense, but my bigger point was the blame shifting.

Sub-20 person startup CEOs didn't cause this problem. Saying "this is YOUR fault, person who just got their first seed round" seems to gloss over the large(r) issues.

No it’s the CEOs job to hire people who know like a CFO and everyone else in finance. Lots of companies make short investments with extra cash. No need to put everything in a single bank account.

Why would we want a situation where everyone splits up their cash into $250k accounts? Seems like that would waste a lot of time while removing competition (who cares what the bank is, any bank is fine for $250k). And it wouldn't ultimately save taxpayers any money, it's just a strategy for gaming the current FDIC guarantee.

You don't need to limit your accounts to a maximum of $250k. You just need to use more than one bank if you're going to use a regional bank like SVB.

Especially a regional bank like SVB that fought hard against regulation, caters specifically to herd-thinking VCs and startups, offered 4.5% APY, and went all in on mortgage backed securities shortly before the Fed hiked rates way up.

> suddenly it's a CEOs fiduciary incompetence that a seed round isn't distributed amongst 16 banks?

That's not your only option and this is nothing new. Even I - arguably a very small business owner - spread my risk. Just in case...

So what exactly is a CEOs responsibility then? I feel like people are increasingly just removing any and all blame from CEOs for mismanaging their companies. Why should they even exist if they have zero responsibilities?

Idea guy? ;)

Don't forget the benefits they got from white glove treatment and easy access to loans. This wasn't a one way street, there was a reason they deposited the money there.

What loans? SVB's problem was that its customers didn't need loans, since they had VC money and just needed somewhere to put it.

> CEOs have a fudiciary responsibility to understand and mitigate risks

This is an impossible standard to hold founders of 10-100 person startups to. Might as well say "CEOs should be omniscient"

The CEO of a 10 person startup I could understand not being on the ball with this.

But not the CEO of a 100 person startup.

100 people is large enough to have a substantial amount of human time available for use, and likely budget as well.

You think the CEO of a 100 person startup should be worried about something like a bank run happening? It's not the 1920s. Most people don't ever consider that money in their bank could disappear for no reason.

Next you should tell me they should worry about "the big one" hitting Silicon Valley which we know the actual odds for and people still seem to live there.

> Most people don't ever consider that money in their bank could disappear for no reason.

Geez. Let’s hope you’re wrong. Financial illiteracy is bad news in a society built on markets.

I can’t speak for “most people” and especially not people in Gen Z, but otherwise, as a matter of fact, many people do think about that and manage their money accordingly.

Bull shit, 99% of people that use the banking system do not worry about bank runs.

Do 99% of people have more than the $250k in their account?

Of those who do, I wonder what percentage would be worried about that risk?

Maybe more than 50%? 75%? 80%?

No, a CEO of a 100 person company should be delegating stuff like this to people with expertise in such matters.

A startup CEO isn’t going to be an expert in everything, no matter how much some people worship them.

> Most people don't ever consider that money in their bank could disappear for no reason.

The $250k FDIC account limit was really well known, so I'd expect someone in the CxO ranks to have it properly managed in a 100 person startup. CFO maybe?

Several people have mentioned over the last few days that spreading $$$ across a bunch of ($250k limit) accounts at banks is a service offered by third parties, to address this very risk.

Wonder what the cost of using such a service would have been, and how many SVB customers were using it?

Anyway, with the current US regulatory approach of "oh shit, lets cover all deposits anyway" I wonder if those services have a future...

> It's not the 1920s.

Is that a good thing or bad thing? :)

>> Next you should tell me they should worry about "the big one" hitting Silicon Valley

The big one as well as this banking debacle should both be on your radar, yes. You are in this for the money. You have money but you want to increase the amount by orders of magnitudes. So you gamble.

You gamble on lots of things so that you spread the risk. Gamble gamble gamble.

Hey, you know what? I sat on three different poker tables this evening. Lost all. I'd like my money back. Now, please.

Yeah the absolute degenerate gamble known as putting a check in a bank.

And most of the feasible scenarios in which banks start collapsing so quickly and widely that depositors end up with barely anything left bar the FDIC insurance are scenarios in which the economic outlook is so grim your startup that's relying on rapid growth and further funding to survive isn't going to make it anyway.

Admittedly, picking a startup as a bank increases that risk somewhat, but so does picking a startup to provide your CRM system or web platform or other mission critical stuff that's a lot more likely to be shut down with minimal warning, or indeed choosing to raise funding from a VC that wants you to 20x or bust...

> You think the CEO of a 100 person startup should be worried about something like a bank run happening?

Yes. Not specifically a bank run, but bank failure. Cash is the lifeblood of a company. Let's not worry about our cash becoming unavailable, in a bank that buys risky assets with our cash, in a perilous interest rates environment, "cuz it's not 1920."

  You think the CEO of a 100 person startup should be worried about something like a bank run happening?

Yes. A CEO should know where the money is, what the risks are, and how to handle them.

I'm just some jackass that knows about FDIC limits and how they (used to) work, and I'm as far from a CEO as I can be. I absolutely expect CEOs to be thinking about this stuff.

Just wow. "Money Saving Expert", a UK website which gives pretty decent advice for the average person in the UK mentions the government provided insurance limit for deposit accounts (£85,000). Anyone reading that site knows their money could be lost if they have more than the limit in any single bank (or multiple banks where a subsidiary shares the owner banks insurance).

But then again it doesn't really surprise me that an SV CEO would have no concept of deposit insurance. They live in a different world.

Does average person read the website?

If a CEO of 100 person startup can't understand the concept of business continuity planning, what are they doing, exactly?

I'm a nobody who got some startup lotto monies that were in excess of FDIC limits. You know what I did? I used multiple banks.

If you are not planning for "the big one," you are, again, accepting risk. My parents did not have earthquake insurance in SoCal in 1992 and had to start thinking about how they were going to repair the collapsed chimney on our house. I also didn't carry earthquake insurance on my SoCal house, knowing full well it is a risk. My mitigation being stocking up on food and water and having alternative sources of heat.

If you want your investments to be guaranteed by the US governent, that product exists (US Treasury bonds) and it is popular. The yields are pretty low though. People with megabucks to invest who put it in something other than treasuries do that because they chose to accept higher risks in order to chase higher returns. Except surprise, now the risk is socialized.

No, people with deposits in SVB never faced having it all disappear. SVB was insolvent which meant that its liabilities were larger than its assets. That doesn't mean the assets were worthless. The FDIC process is like a bankruptcy. First, everyone gets restored up to the $250K insurance limit. Next, the remaining assets are sold off and the proceeds are divvied up among the uninsured depositors. So the depositors take a haircut: some fraction goes poof and they get back the rest. They don't end up empty handed. Figures like 90% (i.e. they lose 10%) were being thrown around this morning, before the bailout.

Or perhaps “CEOs should hire a CFO”

Founders are often coming into new levels of financial responsibility when they get funded and as their business draws in later rounds of investment and customer revenue. You can’t assume $4M works the same way as $40k or your liable to lose a big chunk of it. Thankfully, there are professionals whose role is to help with that.

Or the VC companies that lent the money would pool resources and have one person handle a few smaller businesses using similar procedures to mitigate risk. Helping manage growth is part of what these companies are supposed to do and you'd think it would protect the investment (in a world where you thought the limit was actually $250k).

Oddly though, a thing I've heard repeated over and over is "it was in our covenant to use only SVC."

CEO's should read the god damn bank agreement. WTF.

How does "reading the bank agreement" improve anything? Every bank has the same exact risk.

No. Every bank does not impose the same risk.

Regional banks like SVB have different regulations than other banks.

So many people in all these threads that are doing the Monday morning quarterback of startup founders and believing that they would have done things differently if only THEY had been the CEO.

Obviously the #1 top priority of the CEO of an early stage startup is to spend time assessing and countering risks such as bank runs, gross mismanagement at their bank, earthquakes

This is reducto ad absurdum. The kind of risk management that would have saved startups here is basic, elementary business. Parking money at treasurydirect, firms that handle this kind of thing as a service.

If this leads to bailout then does it mean that taxpayers are effectively responsible for the CEOs decisions?

If they are not, then it's 250k left from every account and all else is lost. And someone could be sued for that. Who should it be if not CEOs?

The $250k coverage (per depositor) is also funded by taxpayers, right?

No, the FDIC is an insurance pool funded by its member banks.

That is the standard as defined by law and to which all directors sign up to.

If you can't live up to that responsibility don't run a company.

You don't have to be anywhere close to "omniscient" to understand the concepts of risk and insurance. Every layman knows about FDIC limits. In addition, these CEOs are backed and advised by resourceful VCs. Those VCs wrote checks into SVB accounts and apparently didn't care to give any advice about protecting those uninsured piles of cash. Hubris or incompetence or both.

> Those VCs wrote checks into SVB accounts and apparently didn't care to give any advice about protecting those uninsured piles of cash.

Worse, according to others in the thread they had it in the contract that they must use SVB exclusively.

It's an impossible standard to hold founders to know that deposits are insured up to $250,000? This isn't exactly fine print. Just be minimally competent and not a clown.

What were the risky bets?

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