My startup banking story
mitchellh.com
mitchellh.com
It was then he remembered that Hashicorp account. When he was shown the door at Chase, the account had a few hundred grand in it. Through knowledge of internal procedures and some social engineering, he began fraudulently obtaining funds from the account. He hoped they had forgotten that the account existed. It must be pennies to those people, they shuffle around millions without batting an eye.
Then, one day the cops show up at his seedy motel room. He was arrested for the fraud and found guilty. The judge was particularly heavy-handed and gave him 10 years, despite no priors.
Alex kept a picture of the founder of Hashicorp on the wall of his cell all those years, blaming him for the turn his life took. He did push ups and other exercises to keep himself somewhat sane. All the while, dreaming of the day he would get out and take his revenge.
Fast forward to today and Alex is recently released from prison. Biding his time, plotting his revenge...
Alex spends a lot of time on hacker news, hate-reading about these startup types that ruin lives. Getting into the mind of his enemy. One last twist, Alex is me! /s
A few phone calls later and with early access to their product acquired - suffice it to say we were able to generate more ideas of similar caliber than we know what to do with for $0.75 and will be reevaluating our business practices going forward.
I wish you best of luck on your murderous rampage.
My advice: use a retail bank until you have a few million in revenue, then shop around. Make the SVB’s of the world earn your business. SVB in particular was so incredibly entitled.
I’m glad they failed more spectacularly than my little startup.
Going with something else has potential downsides that you may not even be aware of (as the OP describes).
Uninsured Indymac depositors got $0.50/dollar and usually, an uninsured depositor at a small bank can expect $0.60-0.75/dollar.
If someone doesn’t want to buy a small regional, it’s because the FDIC didn’t care to make it happen. Which isn’t surprising if there is no systemic risk involved.
Other than a weekend of stress, what was the actual downside to a founder of using SVB?
Is driving without a seatbelt not a poor decision if one walks away from the wreck?
The normal retail banks are TERRIBLE. I did my startup using a retail bank to start (BofA), and it was an absolute nightmare.
I ended up at First Republic, and they’ve been great.
It’s also something that I have only learned this weekend although I was never in a position to need one
Clearly yes.
If you think there has been no damage to startups since Thursday... well, you're wrong. This episode just made us all poorer. There will be more regulation, there will be exponentially less goodwill (and our industry was already struggling on this front). Any remnant of an image of "tech" being smart or special somehow is totally shot.
So yeah, spending just a bit more time thinking about how to manage risk would have been a more wise approach.
My startup, which raised $1.2M back in 2015, didn't have to pay any monthly fee -- at least until the balance dropped below some threshold in the 5-digit range at which point they started charging $15/mo, I think.
After that startup failed SVB courted me for a personal account. They actually came to me in person, took me out for coffee and stuff. I didn't even have much money at the time but they just seemed really interested in signing up startup founders (even failed ones).
For comparison I tried talking to Chase Private Client at their Palo Alto branch, since my old 401k had gotten big enough to qualify for their minimum if I rolled it over to them. The banker there practically sneered at me, acted exasperated like I was wasting his time and he had much bigger clients to tend to. Also gave me a spiel about their high-fees wealth management in which he asked leading questions about my investments and then tried to make me feel stupid about my answers so that I'd decide to pay Chase to manage it instead. This was all obviously a marketing shtick and I found it incredibly insulting. I went with SVB.
Yes, SVB's web site was ugly. Weirdly they had totally different ugly web sites for their business and personal arms. It functioned fine, though.
This is not about Chase, it's about the branch and the branch manager. I'm pretty sure another branch manager will be annoyed talking to a $2k client in deposits with no in/out flows and might not even consider them for an account.
If you want to bank with a specific bank, shop for the branch.
I had a partial version of this experience with Charles Schwab. (I've been a banking customer for many, many years and have been very happy with them). When I left my first startup after the many year run up to the 2008 crisis, I decided to roll my fairly substantial 401(k) balance to my tiny Schwab brokerage account.
Waiting for the rollover check to arrive was nerve-wracking enough, so I decided to deposit it in person at my local branch in a major city rather than mail it to them and wait again. When I walked into the branch, the reception person looked me up and down and was warming up to tell me that no, they don't have public restrooms. Once I gave my account information, they became very friendly and once I plopped the check down on the counter for deposit, it was all coffee, juices, and pastries from then on. ;)
we started at $0 revenue and $2000 initial deposit at citibank. over the next few years we put $millions a year through them, carried a balance of $millions in combined checking and mmf, and sold our company for $millions. now my personal accounts at the bank are in $low-thousands, and my post-sale money is in investment banks.
nobody from citi ever called, or cared, or said anything when i went to the branch other than one time a teller asking me what our business did because he thought we were a tech company and he really liked cloud computing stuff. i was happy to talk to him about it, and that was it.
99% of banking is boring and uneventful, it's just numbers on a screen, especially if you live in an area where big bank accounts are common (certain areas of big states like ca, tx, ny, etc.)
anecdote on an anecodte: when we sold our biz, i tried to transfer ownership of the account to the new owner, and the branch manager couldn't actually make that happen. he said i needed to write a letter (a physical, printed and signed letter) to the headquarters of citi. l-o-l obviously we didn't do that, so we just shut it down and cashier check deposited the balance to the new owner's account at chase - and they happened to have a branch literally 2 blocks away. i just walked in and deposited the check into his account #. the teller seemed like she did this sort of thing on a regular basis.
I wish my bankers would shut up about building a relationship, and just process these numbers. They are the car dealerships of holding money, such employees should be working on instagram not in the real economy. Human in the loop costs huge amounts of money and they only interfere.
Last time after a bank transfer that required log in, login confirmation by phone, bank transfer UI access by digit card security, bank transfer confirmation by SMS…
…she just called to check it was me. For $650.
I wish banks would just shut up and process our money.
no. it really isn't.
They should get real jobs like being influencers or something.
I'll bank again at Citi if I ever need to based solely on how easy it was to leave them.
Time Warner: "You won't stay with us over Google Fiber even if we're cheaper?"
Me: "No, because I won't have to have this stupid conversation if I decide to cancel Google Fiber."
One day I was unable to log in. After logging successfully a message popped up demanding debit card activation. Every time I pressed 'cancel' I was logged out. That lasted for months. Effectively they locked me out of online access. By then I moved everything to another bank, so it wasn't a big problem. Then I visited their branch in person and requested all my accounts to be closed. I repeated 'All of them'. They did it, or pretended. I left being sure I'm done with Citi forever. But no, they kept debit card account open, without telling me. For charging purposes, as they don't provide any services, and they know it.
If locking out (they did build and activate this functionality in their system) was the bottom of banking. Silent not closing on request and demanding money for 'service' is a scum. My recommendation: Stay away from Citi.
They’ve been chasing our business ever since we moved to SVB post Series A. They’re going to get it since we wired our money out of SVB today (not my decision), but do they deserve it? Absolutely not.
Pretty sure they are not.
If your first friend at any company isn't someone in accounting your doing it wrong.
Good accounting is not something you outsource, and a good accounting team is worth their weight in gold.
If your concerned about exchange rates, you better have competent folks in accounting.
I'm happy to believe you on that point, but can you explain WHY? It appears to me that accounting is the exact type of generalized skill with well-established standards that makes sense to outsource.
Once you get past "how much is in the checking account" and into the why attached to quantity then you get insight. What is the cost and value of a client? Are there fixed costs (acquisition, setup) and variable (AWS/Usage).
The ebb and flow of money and someone keeping an eye on it matter. Where and how you bank matters (lesson some are just learning). Hell just pricing a product internationally is a task that genuinely requires an accountant.
Go hang with accountants, learn what they do and see the insight they provide.
The company was also a VC-backed startup and is on the road to IPO, so it's run like an investment, not a cost center -- and hiring and keeping great employees is a priority. The perks and benefits are really great. It has won awards for the last ~5 years for being the "best company to work for in $region".
Financial management for startups with respect to "how big you are" is almost always "not big enough" until you have tens of millions. Both seed and series a are usually to be spent within a couple of years and hiring a full time financial manager to represent 5%-10% of payroll is just not worth it, he won't recoup his salary even by excellent trickery.
Just like everybody in tech is doing something with computers and writing code
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.
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.
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
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.
"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.
“Enough” is likely the key word. But if you have business or personal accounts with over a couple million (and certainly $10+ million), I would be shocked if someone higher up than a clerk hadn’t personally reached out to you, tried to take you out to coffee, and let you know the perks applicable to your personal situation they can provide you that you can’t find on a website.
Sure, they likely weren’t as enticing as SVB’s perks nor as willing to lend to an account that had $0 yesterday and millions the next, but they absolutely will offer personal loans/mortgages against stock compensation on the guarantee you keep your account with them above a certain threshold, etc.
There are plenty of ways to get you in the conversational door like offering a better rate or to help protect the account.
Eventually someone from hashicorp "...notices we have ~$35M sitting in cash in a Chase bank account. This is obviously not a smart thing to do, so he suggests some financial plans for how to better safeguard and utilize this mountain of cash". The bank could have been the party to preemptively explain this to the author, and if they did they might have been able to be a part of the solution (or at least try to negotiate for it) instead of losing the entire account.
It sounds like the bank manager was being too delicate, asking the author if they had any banking needs when he didn't really think he had any. They should have been more blunt and said look dude you have a ton of money in here, you're probably not used to managing this amount of money, we need to take just a bit of time to discuss it and we'll make it easy and worth your while.
i see what you did there
Other than that, it's not clear from this story why they chose Silicon Valley Bank - it sounds like this VP of Finance is the person who could explain what (if anything) they did better than Chase.
The usual emails of credit cards, better interest on savings (money sat in the account for nothing) or others if it didn't happen?
At least from the recount there was no mention of e.g. we realised you're a big customer and we have some special packages for you. Services like AWS would immediate assign an account manager, want to know you more and offer training, assistance and all sorts of things and not just when you make a transfer.
"Hi, are you actually a startup? Because with a regular business account you're missing out on a lot of money. I would very much like to schedule a few minutes with your CFO and talk over what could be done."
Maybe he bites maybe he doesn't, but he's no longer so naïve.
Also, the implication that the Alex guy was fired or something because a customer decided to switch banks seems to only indicate that Chase has a toxic internal culture. Customers switching banks is not unheard of...
It wouldn’t be read and now Alex is spamming him.
I can't say I shed a single tear for him or Alex. What services did Alex render in this story to justify being a "rising star"? That one account likely earned him significant compensation -- multiples of what I made doing 80 hour weeks in my 20s at 20k/yr -- for a significant chunk of his earning career. For what? A few phone calls to someone who didn't want to be contacted.
The rent seeking component of the American economy needs to be competed out of existence. Their margin is everyone else's broken back.
Maybe that's one of the things Alex wanted to sell him.
There is a false equivalency made here, in that it assumes that the debate regarding labor & the debate regarding capital are interchangeable.
Landlords (& possibly account managers like "Alex") derive their compensation from the maintenance & management of the capital's safety & utility: The quality of said capital (whether cash or real estate) should remain constant if they did their job. The debate enters in when the capital owners/managers put in little documented effort & receive large compensations in response.
For Software Corps, their compensations are derived from difference between the value created from the creative, technical, & outreach labor put in from their SWEs, designers, marketers, etc., and the cost of compensating that labor + maintaining the necessary equipment to make the labor usable. For this, the debate enters in on how much they should be compensated for the labor put in.
The two debates are not strictly equal.
You’ve managed to be simultaneously very right and so wrong
I don't have much respect for people who make their living off of capital rather than labor.
Having a good banker that you trust is very helpful when you’re running a small/local business or bootstrapping.
And yes, just like an B2B SaaS or freemium game that gets lucky and lands a low-maintenance whale, a banker can sometimes earn a lot for doing very little. But that occasional exception doesn’t mean that they’re useless and “need to be competed out of business”
He didn't.
What is perhaps a touch of poetry is the author learning (the hardway) about the lessons with managing large amounts of cash, while simultaneously learning the hardway about being a customer account manager.
As another commenter wrote, Alex blew his opportunity.
It was all outside of his actions and any benefit he received was purely accidental.
The bank thinks of multi-million dollar business accounts as a deeply personal relationship between the CEO and account manager, where the AM takes the CEO to fancy dinners and golf outings and remembers the names of the CEO's children. HashiCorp's account might have been the largest that had ever been opened at that particular branch.
This article is an amusing(?) story about those two worldviews making contact.
Doesn't seem like that a big of deal, but a bummer for sure!
Honestly I'm sure a lot of people on HN have experienced the "hey I just wanted to see how you were doing" call from their bank. Once you have >$100k in your chase accounts they'll start doing that.
But why would anyone have that much money in their Chase accounts? I keep a nominal amount of money in my chase account and send the bulk of my money to fidelity to throw into whatever investment vehicle I like. Sadly, I think you need to have $1mil at fidelity to get the same red carpet treatment chase will give you for $100k.
They said in TFA they were just chugging along with the startup and didn’t know any better until hiring a finance person.
Obviously having $35m sitting in a bank account is less than optimal.
Is there a good reason for this other than if you're about to buy a house or something? Most of my net worth is in investments; very little is in checking or savings, because it doesn't seem like there is any benefit to that.
Liquidity. FDIC insurance upto $250k. Of course, you don't want to put a big chunk of your money into a bank like this, but $100k is not a "big chunk of your money" to a lot of people, in relative terms.
I'm assuming your sentiment applies to HYSAs as well, which is the better place for this kind of thing.
I guess I'll note, I've never had that much in my personal account but I have a friend who did for a while (and a family member who also did). Personally, I canceled my chase account because a teller at the local branch was being a condescending dick to me. I assume because I didn't have that much money in my account lmao.
Says a lot about the level of service my credit union gives lol. I've had more than that in my account before and they never gave me special treatment. XD
Heh, not Wells Fargo.
After 20 years being a customer and carrying very large deposits they will charge you for a cahiers check at the window. After you politely ask for it to be waived (having worked for the bank knowing they can waive it for you), being declined by the manager on duty who handled the escalation, and responding "I need the check but if you charge me for this I will close my account" to the question "Do you still want the check for the fee?"; then they will start calling you after the 10k daily transfers out start.
I am more surprised about the founder lack of interest for bank and finance. It’s fully in his duty to know where his investor money is. And he seems to be careless about it.
This kid is now a billionaire(?). I think this is a good example of the financial acumen of a typical SVB customer.
I don’t say this to promote or defend a bail out. To me it says that if we are regulating the system to protect deposits, we should come up with rules that actually work. For better or for worse, a bank is a bank is a bank is how most people see it.
> Hashimoto, the original CEO, is a new billionaire, worth $1.2 billion based on the IPO price.
https://www.forbes.com/sites/kenrickcai/2021/12/09/hashicorp...
While I totally wouldn't expect startup founders to behave hardly any different than Hashimoto, I would expect VCs to have done a much better job helping their startups do cash management. I mean, isn't that a pitch so many VCs give, in that it's not just "we give you money", but we also help connect you with experts for different parts of the business?
Even for pure self interest, if VCs are going to write a "kid" a check for $10 million, wouldn't they want to ensure it was properly safeguarded?
Regardless of the above, I 100% agree with your "we should come up with rules that actually work" statement.
I strongly suspect that SVB's relations with the VCs interfered with this obvious item.
But I think it’s beyond the ability of many.
For the most part, they do. The government made it very clear last weekend that deposits are sacred, but the executives and the shareholders will be taken out back and shot if they are caught doing risky things. (Signature bank was seized, and it wasn't even insolvent.)
What would make those people happy, exactly, and why should anyone care about their happiness? I rather like living in a world where from the perspective of the end user, my money doesn't disappear because some moron five steps removed from me decided to YOLO the bank on 10-year treasuries.
I also, for similar reasons, like living in a world where I don't need to personally test all my produce for e.coli contamination, or my food coloring for cadmium.
Your metaphor isn’t very good but you’d be upset if someone was found to be circumventing food safety rules and poisoning food, and the government changed the rules to avoid them going out of business.
And made me, the depositors, the people impacted by that bad behaviour whole.
Again, what exactly is the problem, here? Which bad outcomes have the changes to the rules produced?
[1] Well, the C-suite isn't, but they are all going to be sued by the investors that lost money due to their bad management.
[2] Once the FDIC finishes picking through their carcass, if there's any value left (Possible for Silvergate), those groups might get pennies on the dollar.
But it’s also a principled point. If you believe that rules don’t matter as long as you like the outcome, that’s a bad way to run a society.
Could you outline under what mechanism other banks will look at what happened to Signature and SVB, and conclude that they should engage in behavior that's likely to get them seized, and their equity zeroed out?
> If you believe that rules don’t matter as long as you like the outcome, that’s a bad way to run a society.
There was no rule that capped recoupable deposits at $250,000. There was simply a rule that guaranteed them up to $250,000.
Also, if your rules result in puppies being regularly pushed into the puppy-shredder, and depositors routinely losing their money through no fault of their own, that's also a bad way to run a society.
You know what's a good way to run a society? Retail banks being a boring, dumb, stable, reliable service.
What rules were broken? Tell us, what are the rules the FDIC operate under?
People are angry because (they are being convinced) somebody is getting a hand-out that isn't them and they haven't personally deemed worthy. Just like people get angry over the idea of free healthcare going to immigrants and college loan forgiveness going to.. Whoever.
That's not even what's happening because the FDIC, now in control of SVBs assets, are going to use those assets to balance the books. They have the liquidity to guarantee depositors funds while they wait for the loans and bonds to reach maturity.
Furthermore, once I visited Philadelphia, and I saw several people standing in queue. I asked what restaurant or place that was. My driver said it's where people wait in line to pay their rent. He did not laugh. That was not a joke. People do that for real in the USA.
And it goes both ways, there are things here that Americans would think are a bit backwards. Like if I'm ordering something online here in Czech Republic it's really common to allow payment via direct bank transfer - i.e. they'll give you a bank account number and a variabilní číslo ("variable number" - a way they can identify the payment on their end), you make the transfer using these values and they'll send out the order when they confirm they received the payment. Nowadays a QR code will often be generated for this and you'll just scan it in your banking app, but it could seem a little backwards if you're used to paying via debit/credit card.
The capital Caracas has a tunnel, in which gangs often stop cars and shoot through the window (cost of bullet = $0.10) in order to collect any change the driver or other passengers may hold - if someone was on their way to pay the monthly rent at the bank it would be their lucky day, but if the driver had just $20 in their wallet, it's still a profit of $19.90 minus the cost of the assassin's time.
Good there are electronic standing orders in most countries.
However, most of that is probably explained by the cash crowd trying to avoid taxes. Of course, if income taxes were minimal, there would be less effort to avoid it.
Also, cash doesn't show up when doing welfare checks against your bank accounts. To receive food stamps, you can't have more than $2000 in your bank accounts combined at any point.
Every apartment I've ever heard of does it through automatic bank draft.
Are you sure this guy wasn't pranking you? It's Philly and they are known for being sarcastic.
The postscript to this is the bank has been closing branches left and right, so I imagine one day they'll close "mine" and then I don't know what I'll do with cheques. Hopefully they'll have finally died out by then.
The likelihood of me continuing as a happy customer is inversely proportional to the number of unsolicited calls I get.
Mostly all this means is these days I give out the main number to my pbx IVR menu and never my direct cellphone number.
I get these exact phone calls from Wells Fargo because they bought my mortgage, I don't have any other accounts with them. Since they bought my mortgage I've never even been in a WF branch. They call from the closest one, which isn't very close.
They are the only bank that's ever called me like this. I have had accounts with many different banks.
Alas, I don't think Tarsnap has ever had such calls from my bank -- I guess it doesn't keep enough cash for them to consider it an exceptional small business account -- but I have had such calls from PayPal... interestingly, not correlated with anything I've noticed, so maybe PayPal is just calling everyone in Tarsnap's volume range on a schedule. Similarly, I get regular "check in" emails from AWS... the most recent one offering a discount ticket to re:invent.
I don't think I've ever had any such calls from Stripe. Now I'm starting to feel unappreciated!
Why wouldn't the fraud department ask the "account manager" what is going on?
This is the first time I hear of a situation like this, and I'm really curious.
Yes. Just like you still pay interest on a loan even if you just let the cash all sit in a bank account.
A loan is fundamentally different from a share purchase though, you can try to buy back you shares but that would be a separate negotiation.
I assume it was semi related as you want to be sure they are ready for you / have the money on hand for you to issue the check.
Not that they wouldn’t have the money but depending on some else(s) showing up looking to empty the local branch inadvertently… you want to be sure they got you covered.
When we were starting up, we were just a bunch of bright-eyed 18-year-olds, with nothing to our name, except $3000. We didn't know the basic shit about opening a business account and shopping around, so we went to the name-brand small private bank we could find that was "sexy", cold called them and explained our situation. We were all broke, still in college, no real revenue so to speak of, and the person handling the call literally did not know where to guide us (or she misunderstood us?), so she sent us off to a relationship manager, to whom we relayed our story. He told us to go look elsewhere.
Actually, yeah, he told us to go look elsewhere because that bank was not suited to handling corporate accounts, but mostly private wealth management. And their minimum deposit was $200,000 for the basic accounts, with a $1 million being the usual expected deposit. Instead, he himself referred us to another bank, which gladly took us on, because of his referral. We thanked him so much, created our account, whatever.
Fast forward to 3 years later, we sold the company and were flush with cash, so obviously y'all know to whom we went to handle our accounts. By then he was in a much larger bank. When he left that one for Credit Suisse, we all followed him. Over these years, he might have received a collective amount of more than $200 million in banking business from our relationship (not from our startup alone, other investments too).
Like a lot of people in startups.
Some of which fail. Some due to svb. Some to other reasons.
Same “newbie taking serious action” trend.
Like 17/18 yo kids getting signed up with predatory college loans.
We’ll bail out capital owning class members… but those same folk laugh at the student loan cohort…
1) Chip and pin took the US forever to adopt. I've heard arguments that this is because chip and pin is 'insecure'. Insecure compared to a signature or magnetic stripe? Really?
2) SSL certificates. A lot of the retail banks use the cheapest grade SSL certificates. No extended validation. So you don't get that reassuring green padlock. No idea why. Something about compliance I read once. Bizarre.
3) ACH payments take three days to wire. Again, I've heard the argument for this is that it helps security as it gives you a chance to cancel the payment before it finally completes. More plausibly though, I think it helps the banks generate fees. Granted, it took legislative intervention in the EU to get this right, but clearly it's a net win for the economy.
A lot of people buy the arguments, too. Banking in the UK/EU is like living in the future when compared to the US.
EDIT: Oh, and I forgot about cheques (checks). The US still loves a check. The banking equivalent of the Penny Farthing.
All major browsers have removed the green padlock for EV certificates. It did not improve user security behaviour. There are some arguments that it had a detrimental effect.
You can still distinguish certificate types by clicking on the small padlock icon in the URL bar. But of course no one does that.
Consequently there is no current reason to pay (in cost and time) for an EV certificate.
But yeah, it's still kind of mind-boggling that they could do this for apparently years without anyone noticing. And not just on Chase's side: how do you not notice that the money customers claim to be paying you is not actually landing in your main bank account?
He can make that trip a thousand times and never encounter any issues. Whether there’s a 1M check in his pocket is immaterial.
I opened a new account and ACHed $25k into it which triggered all sorts of "fraud alerts" and put my money in limbo for days. Ended up having to get on a three way conference call for the transfer to go through.
I have received such a call from Chase only once in my 35 adult years, and it was triggered by a deposit much smaller than 35M.
Did the VP of Finance point out the ridiculous amount of lost interest by keeping $35M idly sitting as cash? Definitely a lot more than $100k.
This makes little sense, bordering to impossible, pairing invoices and payments received is weekly or at most monthly routine.
I don’t think anyone did anything wrong at all.
Alex correctly assessed that he was giving his customer everything they wanted, and left it at that. It doesn’t sound like he was pushy. He didn’t call more than once in a while after big deposits. Mitchel just needed a place to hold cash. Seems like they both got everything they needed out of the relationship.
If anybody here was deluded, maybe it was Alex’s leadership who mistakenly thought there was a chance to sell huge financial products to this “whale.” Alex understood otherwise, and probably spent most of his time managing that impedance mismatch with his boss.
Also, this makes me think how in a world where stablecoins are regulated with clear rules of what their issuers can and can’t do, you’d be better off having your funds in something like USDC instead of a bank account. It’s basically the same thing as a bank account but with full instead of fractional reserve, and the ability to hold and transfer the ‘I Owe U’ units without involving ‘the bank’ itself.
How's this even possible? Anyone can wire out money from any bank account without authorization?
Also why some random guy in random small branch is responsible for money on the account? Here, nobody cares. You close the account, ok no problem see ya.
I guess a flight to New York is worth it.
Of course your banker calls - in fact, what OP should've done is email the banker beforehand, "headsup: big day! We just closed our series A financing with <fund>. I've got $x coming in by wire." and they respond "congrats, I'll be on the lookout for it." You don't want to surprise your TradFi bank or banker, and you do want to "build a relationship" with them.
The WHOLE POINT and the key feature of TradFi banking is the personal relationship. No, you don't need to invite your banker to your kid's graduation. But yes, spend 15 minutes playing get-to-know-you in an RL branch, talk a little about the business (source of funds, what you do, types of customers, etc), bring them treats you know they like (important: must be tiny$) and then when Stuff Happens or You Need Something, the banker is suddenly your ally in dealing with the banking system. Remember, when you deposit $1M+ you're now part of "the club" and the bank and banking system is there to help you.
I've had a private bankers at multiple institutions for decades and have numerous stories where they untangled messes, worked around the pandemic, helped me "skip the line" and more. Friends tell me about wasting hours on banking issues but I've rarely experienced that, thanks to my private bankers. When things do get messed up, my banker explains what's going on, e.g. "yeah it's stupid and affecting other customers too - bank policy is ridiculous this year, but I'm sure they'll fix it because everybody's complaining and threatening to leave." And sure enough, a few months later it's fixed. Like Google, you report serious bugs and then wait, and if the fix is feasible and affecting other people, they eventually get fixed.
There are downsides: bankers are human and don't work 24x7x365 so you need to also make friends with the branch manager or an assistant, and of course TradFi isn't crypto and you can't transact at certain times/days, e.g. wire cutoff deadlines. Also, bankers retire, get promoted, move branches, etc so you need to plan to rebuild the relationship every 5-10 years. Finally, bankers vary in quality and "fit" - if you don't get someone you like, ask around. I once had a kickass banker but she switched branches and her replacement was too junior to help me, so I begged a little and got my account reassigned to her & her branch and life is good again.
tl;dr: TradFi is your friend if you play by its rules and work the system.
DM me for intro to a kickass Chase banker - direct referral in NYC, otherwise she'll refer you (so far, her referrals have been solid, but YMMV by location)
It's weird. I remember 5 years ago, when I got involved in blockchain space, I was seeing people holding $20k in crypto and I was thinking that they're crazy. Now I'm holding over $20k in crypto myself and it feels like the safest asset on earth.
I don't even trust company shares. I would never trust any human being with more than a new car's worth of value. I worked too hard for it and humans are not trustworthy enough.
If you have $20K of non-blacklisted BTC you will probably be able to find a buyer somewhere in the world, though the exchange rate might not be as efficient as a CEX like Coinbase.
GP’s logic seems poor though. In US or EU, probably safer to hold up to the insurance limit in local banks. Beyond that, or for higher risk assets or in countries with poor banking infra, crypto becomes a viable option.
> Someone out there is probably mentally screaming at me "you fool!" at this point.
These are each clearly building up to "some explanation" of what the author should have done instead, indicating precisely what his foolish actions were and why. Perhaps we're just supposed to know that, but this is never directly explained in the story and I found it a little upsetting.
Kinda what happened to SVB. They’d likely have been fine if they didn’t tell people they needed money.
[edited below - because threaded comments can come across wrong]
I wonder if how Alex's boss would tell this story is - my employee landed a $35m account, then failed to manage the account successfully, and when $35m walked out the door, we never understood what we did wrong
I don’t know about you, but it seemed fairly obvious to me that our protagonist didn’t see the bank as anything other than a convenient stash of money.
If our protagonist saw a bank as a convenient stash of money, then that's all it was for him. If it were to be anything else, Alex would have been the person who would inform him of that, something he clearly massively failed to do.
If I happened to start a startup and be given a $35M check, I would do exactly what the person in this story did, for the same reasons, and unless a bank person told me otherwise I wouldn't think anything more of it. A bank is a bank is a bank until they demonstrate otherwise to their customer, not the other way around.
He was just clueless to how banking worked at the time and how bankers expected to be involved with helping new clients gradually grow their banking relationship.
He was a young kid who intuitively engaged in anonymous, electronic, modern banking before bank branches were really there themselves.
To young people who came up after him, his intuitive way became more the norm — especially for VC startups — and the idea that you might buy your banker a bottle of nice whiskey for the holidays makes no sense. But for Alex, the banker, who had a kid come in and grow an account to $35M and then silently drain it without ever consulting with him, the whole experience was alien and absolutely bewildering.
You can think of it as a culture clash or maybe a missed opportunity. More awkward than wrong.
For personal banking, absolutely. But the property management business I bought, and then sold, had dedicated account managers at both banks we used, and both they (and the previous owner of my company) had an expectation of personal contact and fairly regular conversations--both because our customers also used those banks, but also just because it's the norm.
This was in 2020, for reference.
Business banking isn't all startups.
Move along, citizen.
> Perhaps we're just supposed to know that, but this is never
> directly explained in the story and I found it a little upsetting.
The default for business accounts in "traditional" banks is that they're handled by a specific named account manager, who is given the credit (or blame) for that account's growth over the years. So walking into some remote branch and opening an account will tie that account directly to the political success of whoever was sitting across the desk from you when you signed the paperwork.
It's a failure mode that doesn't need an explanation to people who are the expected audience of the article. In software terms, imagine an article about launching an MVP that starts off with "so I copy-pasted some PHP from StackOveflow and ran it with default permissions in the same database that stores customer credit card details ...". There doesn't need to be a long digression about why that's bad.
I don't think the end user of a bank's services can or should be expected to know about, or take this factor into consideration when choosing to close their account or drastically change how they use it, however.
It's not personal, it's business, and to a certain extent any large US domestic bank is functionally equivalent to the other in features, fees and risk level.
If I closed everything I have with Wells Fargo tomorrow and reopened it with BOA or Chase I would expect about the same functionality.
Traditionally, businesses establish relationships with their banker (a person), who helps steward their accounts, apply for loans, understand and pursue savings and investment options for held balances, etc
Banking organizations are built around this very very long-standing model. There are processes and spreadsheets and powerpoints and dumb little mugs for high performers and all those things.
Clearly, with the consolidation of banks and the pervasiveness of online banking, this is in the process of changing. This story captures one of those transitional moments, where a young kid with a startup is completely blind to what bankers expect to be doing.
But your version of “how things are” is very contemporary, and wasn’t quite the way of things when this story takes place.
Anecdotally I've worked for a company that bought a lot of lasers. Like, really, a lot. Enough lasers to make the laser vendor fly our sales representative out to our city and hang out visiting us for a few days. They would offer to take the whole team out for dinner and drinks. It was just weird and uncomfortable. I have other things to be doing with my personal evening between 5:30 and 9pm.
It's like concierge banking, you get 1 person that will just make all of your bank and finance problems go away. You need a house loan, your person would just make it happen. You need financing, they can help with loans, going public, seed rounds whatever you need. They can also help you locate attorneys to help draft financial contracts, etc. Tax specialists that can help you minimize taxes, etc. There isn't much of a limit around both personal and business finance they wouldn't at least help get you pointed in a semi-sane direction with.
Assuming Alex was any good, which clearly they weren't that good, since they did such a terrible job of explaining all they could offer to the blog post writer. That's partly on Chase, but probably mostly on Alex.
We have a banker and I needed to buy a car recently, I told them my plans and they analyzed various payment options(loan, leasing, paying cash) and gave me a recommendation(just pay cash). When it came time to actually buy the car, the dealer wouldn't take a credit card for the entire cost, so my banker organized a cashiers check so I just walked into the closest local branch, picked up the check and was back at the dealer in 5 minutes(not including travel time).
Sure they can do the whole smooozhy mess as well if you really want that, but we don't, so my banker doesn't do any of those things with me. They know the sorts of charities and things I like, so if the bank ends up sponsoring something in my area, they will let me know and organize tickets or whatever if I wanted. I rarely do those sorts of events, but there are certain ones I like and my banker knows that and just organizes tickets and what not for those events once or twice a year that I like doing.
I have a new startup now and bank with Chase. I will say the banker asked the right questions, understood this was a startup and went into all they could offer. My biggest gripe with Chase that some above said SVB sorted, is the ability to get a credit card in a company name without being tied to personal, at the size we are.
Obviously good relationships with good bankers only happen if you have sufficient assets that financial problems are not usually a lack of assets problem. :) Every bank will be different in the $$ amounts/assets you need to have to get access to the concierge banker pool. Also every bank has a different name for their private/concierge banking.
Generally speaking $1M or more is sort of the minimum amount to have access to the banks good banker people. When you get into the 20-30M range, you can start thinking about sharing a private office with a few other people also in that range, and when you get into 100M or more you can think about starting your own private office, where you hire a full time money person or three to manage it all for you, and they will deal with the concierge bankers. Private/Family offices are sort of concierge banking plus. The Plus is, they will handle your entire family(however you choose to define it), they will teach you and your family whatever you need to know, they will handle budgets, paying bills all that stuff. They will sort out actually purchasing stuff, organizing trips, generally the sky is the limit here.
At BOA, with $100k worth of assets you can get into Platinum Honors which is good banking, but not at the same level as concierge banking. I.e. you don't get access to private banking, but whenever you walk in or make an appt, the BOA person you get will generally do their best to make you happy. Chase has a similar sort of program I believe, but am unfamiliar with it.