a) when you raise millions of dollars, don't set it in one account, figure out how to get deposit insurance. Many banks offer programs to spread deposits across many institutions, so it's not like you necessarily need to administer a lot of accounts directly.

b) don't bank where Peter Thiel and his friends bank. Cause they're panicy. Probably try to avoid anything he and his friends use heavily without commitments, where them pulling out will cause major immediate issues.

So essentially what you're saying is people should open a new account for every $250k they have, so their money is insured. Insane that this is something that people now need to worry about.

> So essentially what you're saying is people should open a new account for every $250k they have

OP mentioned that there might be a service for that, and potentially also insurance that you can take out yourself for higher amounts.

> Insane that this is something that people now need to worry about.

Always has been, that is if you were just somewhat risk averse - more than one (unrelated!) bank account has always made sense.

FWIW, here in the EU we're only covered until 100k €, so 2.5 times as many banks required to spread safely ;-P

But, a lot of people do not need to have the cash around all the time, so one can but a big amount into relatively safe securities like S&P500 or for lower risk, which might be preferred here, gov bonds, and keep only the cash on hand for a few months of your expenses, which means most of the time two banks are enough, and having an account on two unrelated banks makes sense anyway - as if one has a bank run or fails completely you have still access to the cash on the other, for short-term things.

For companies this can work too, but they need a constant revenue stream matching their normal monthly expenses (e.g., salaries, office rents, ...) for it to work best.

This was always true.

> what you're saying is people should open a new account for every $250k they have, so their money is insure

This is over the top. Sure, use a sweep to get ~$3mm insured. But just have a second account.

Loads of start-ups got screwed because they didn’t have a second account and opening a new business checking account takes time. (Not strictly true: a simple Board authorisation should allow for an emergency transfer to a personal bank account.)

Nearly every bank that does reasonable amounts of commercial services has a product that just does this for you. Googling FDIC sweep account will yield plenty of examples. There are also ones that will hold T bills or similar as well.

It’s abstracted away from you and trivial to do. These startups just didn’t do it.

I find it kind of insane to have people walking around with a 100 million bank account for their runway in the best cheese grater.

Call me crazy but I think a company with this much financial holdings would normally have a CFO that buys bonds that vest at the right times, and would have cried a tiny tear at getting less than ideal interest rates on them instead of having a bank collapse with all their finances because it wouldn't be competitive at recruiting more clients with zero financial management going forward.

You don't need to spread it out so each account is < $250k, you need to spread it out enough so you can still make payroll if one fails while you wait for its assets to be sorted out. In most cases for a startup this means two, maybe three if you suspect your two might be correlated; at some point you start buying your own bonds/bills too.

Even if you have all your money spread across different accounts (of the same category) at the same bank they all contribute to the $250k limit. It needs to be spread across account categories and banks.

The FDIC has a resource on this that goes into more detail.

https://www.fdic.gov/resources/deposit-insurance/brochures/i...

For this in particular:

>> "The FDIC insures deposits that a person holds in one insured bank separately from any deposits that the person owns in another separately chartered insured bank. For example, if a person has a certificate of deposit at Bank A and has a certificate of deposit at Bank B, the amounts would each be insured separately up to $250,000. Funds deposited in separate branches of the same insured bank are not separately insured."

Basically what people are saying is that these "CFO"s have/had a skill issue

<tinfoil hat>Regarding (b), I would not rule out malicious intent on Thiel and comapany's part. He is a big hater of the current admimistration and might orchestrate the bank run to undermine Biden's reelection campaign. And on top of that he will have cash to buy the distressed startups and funds for peanuts. </tinfoil hat>

> So what's the real lesson here for a startup?

Be careful of what hard dependencies you choose. The more dependent you are on a third party, or the more dependencies you have, the higher your black swan risk is. Of course, dependencies are a requirement to do business.

Except in this case you want more “dependencies.” Not only to reduce risk but to maximize FDIC insurance.

>Be careful of what hard dependencies you choose.

>Except in this case you want more “dependencies.”

More specifically, if you must have 3rd party dependencies, make sure you fully understand the risks, distribute exposure to adequately minimize central points of failure, and have failover procedures in place to reduce possible downtime.

The technical crowd that successfully run high-uptime web infrastructure with demanding SLAs generally understand this idea very well.

If there's only one back that's willing to fund your venture, maybe you want to do further due diligence on why they'd be willing to go against the odds. Is it really "they believe in what you're trying to do" or is it they are so much less risk averse that maybe they're playing a little loose and fast in other areas that might also be a signal?

The more I keep reading about SVB, the more cultish it sounds.

There needs to be a startup allowing to distribute deposits between bank accounts and operate them as single aggregate account. So that other startups won't keep their money all in the same bank. Not sure if I'm kidding or not.

> needs to be a startup allowing to distribute deposits between bank accounts and operate them as single aggregate account

This is a common banking feature called sweep.

This has been around since there has been FDIC insurance.

This whole thing reminds me of the regular phenomenon where people in Silicon Valley think they are geniuses because they discovered SRO’s or buses or the fact that you can dig tunnels in the ground for cars or something.

I know this exists, I have an account like that. The question is why people aren't using it more then?

I’d argue the real lesson here is that startups with VC money can’t afford to treat their bank account as a black-boxed third party API. Hire a risk-averse financial analyst as CFO early on and task them with the responsibility of making your financial holdings bulletproof to as many different economic shocks as possible.

Hire an actual CFO, it can be fractional/contract. Don't hire anyone with 'analyst' in their title or experience level to manage your money.

Yeah, I don’t know why I tried to specify what kind of person you should hire for CFO. Just hire a good one.

There's not really a lesson here about running a start-up for founders. However there's definitely a lesson here about how societies work that Silicon Valley could better internalize.