This is an impossible standard to hold founders of 10-100 person startups to. Might as well say "CEOs should be omniscient"
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.
Worse, according to others in the thread they had it in the contract that they must use SVB exclusively.
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.
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.
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.
Ironically, it kind of seems it may more likely for a consumer to protect against bank risk than for these startups and VCs that, despite all their resources and CFOs, apparently had collectively decided bank risk isn't a think for them.
Of those who do, I wonder what the percentage of people is, who would be worried about that risk?
Maybe more than 50%? 75%? 80%?
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."
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...
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.
A startup CEO isn’t going to be an expert in everything, no matter how much some people worship them.
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? :)
You think the CEO of a 100 person startup should be worried about something like a bank run happening?
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.
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.
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.
Oddly though, a thing I've heard repeated over and over is "it was in our covenant to use only SVC."
If you can't live up to that responsibility don't run a company.
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?
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.
CEOs who should have known better are not victims.
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.
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.
You pay for AWS because you don’t feel like managing hardware, why just assume you can manage 10s of millions of dollars?
Should they buy the T-Bills and hold the actual certificates under their mattress?
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.
> 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.
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.
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.
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...
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. And 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.