Hacker News Reader

Comment by triyambakam | Hacker News Reader

Isn't it crazy to hold $300M just sitting in the bank? I have pennies for a net worth comparatively and I was taught to keep my money spread around, and not all of it just in cash in the bank. But also, I am ignorant to how a start up operates.

View on HN

Most of that money was their customers' money (e.g., money for payroll). You can't just go invest your customers' funds. Well, I guess you could, but I expect there are tons of regulations. And you'd potentially end up in the same exact situation as SVB: not having enough liquidity to pay out your customers if they ask for their money. Or, your investments are underwater and you don't actually have enough assets to cover the funds your customers have entrusted you with. (Certainly, banks do this, but you're also usually not paying the bank to hold onto your money for you. Whether banks should be allowed to invest your funds at their discretion is another conversation)

Should Rippling have spread those funds out over multiple banks? Maybe. But more moving parts means more room for error, more complicated accounting, and more operational overhead. There is (was?) a compelling argument that you're more likely to goof up juggling $300M than a bank like SVB is.

>You can't just go invest your customers' funds

It's a bank then!

They pull the money out of their customers bank accounts first before disbursing it via payroll, so that $300M figure is really customer funds.

most large companies with that kind of cash dont usually put it in the checking account like you or i are used to. they have treasury operations with actual traders who buy and sell short dated tbills and other extremely secure assets to improve the yield on their cash.

Rippling processes payroll for many companies, so they often have substantial amounts of money (which came from those companies) sitting in the bank, about to be paid out to employees.

You don’t have to use a singular bank to this. You have can have numerous banks in and sweep the money around to control exposure to any one bank. A single bank is not the norm for this kind of setup. Sweep accounts are a thing for this very reason.

Using sweep accounts is considered an investment (of client funds), which must be clearly stated in TOS. This also pulls tons of regulations for the company. There is also a higher chance that one of the sweep account investments goes badly than a bank collapses where you hold client funds.

Yeah my first thought was I am absolutely shocked that they used SVB exclusively until 9 months ago. Now they use JPM, but what if JPM has an issue? You would think a payroll company would integrate with at least 2-3 of the bulge bracket banks…

For long term holding, sure. For funds that move in and out in 48 hours? I doubt any bank wants money bouncing in and out like that. They probably pay svb, and now jpm, to be allowed to do that.

Reply on news.ycombinator.com