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Comment by bcantrill | Hacker News Reader

We were required by covenant to bank exclusively with SVB as part of the venture debt line we had with them. This is a condition that is (was!) very standard and non-negotiable. This is part of what I mean about the real talk: that venture debt line was clutch for us -- and I would wager than any hard tech company that you revere has used venture debt at one time or another.

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This is the problem though! And why people don't feel as much sympathy as you would like. Agreeing to those terms was not a risk-neutral thing. And now the feds have eliminated the downside of that risk, leaving only the upside. And I'm glad you were able to get a venture debt line and I'm glad your deposits are going to be whole, because I really like your business. But this kind of thing creates perverse incentives.

Edit to add: In sensitivity to your point about insufficient empathy, I want to say that I have felt personally very worried for everyone waiting to hear about their paychecks, and about whether businesses I admire would be ruined by this mistake that was not their own. I (unsurprisingly as a commenter here) have a lot of attachments to people affected by this, and I've been very nervous about everybody. But I just also feel like we should be able to take a step back from our own personal feelings and look at this dispassionately and ask: Is this actually good, broadly?

Would you take $100k in free AWS credits if it came with a covenant that forced you to run only in us-east-1? That sounds exactly like what is happening here. If you really need the AWS credits, that's fine and good, but you can expect to take a reputation hit if running only in us-east-1 brings down your servers.

I'm sure you got a really good deal on that venture debt, though. Probably much better than everyone else who offered you a line of credit, and for a good reason.

Well, first, we can't make payroll or pay vendors with AWS credits, so your analogy isn't terribly apt, but it misses the mark in a deeper way: this is more like taking that deal and then AWS deleting some fraction of your S3 objects. That is, unavailability would be in your AWS calculus, but data loss (rightfully) wouldn't be. (I can assure you that total SVB failure would have been viewed as less likely than S3 data loss as recently as a week ago.)

This scenario actually is more like unavailability. SVB has assets that cover your account at par value, but needs time to liquidate them at a decent price (or let them mature). The FDIC has that luxury. Your account would have been open (with most of your money available) on Wednesday without this action.

This isn't a Lehman scenario. Those assets are marketable and worth something. They just can't be sold too quickly. This is why the TARP program made money: the sellers needed money now, but the government could hold those assets to sell at a good time.

I'm sure you could otherwise call up your creditors and they would say, "that sucks, pay us by Friday," and life would be pretty much normal.

That is the way that neither receivership nor payroll actually work. (And we needed to wire by Tuesday -- which is kind of the point?) Now, even in the scenario, we would have made payroll -- but it would have been because heroic investors wired out of personal funds, and I know that not every startup would have been as lucky.

Surely the whole point of AWS credits is that you're paying a vendor with them.

I took a loan like that once; "sign here, don't worry about the blank spots". There was no other alternative if the job was to be done.

When i saw the form again, the blank spots had been filled in with things like "24.99% APR" and other fun things that were not as had been advertised. I knew I was gonna get shaved, going into the deal, but this turned out to be right to the bone.

I learned lessons from that experience. Hopefully y'all learn without incurring unsustainable costs. Good luck getting through this, its gotta be less than fun even if it all turns out right in the end.

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