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Comment by andrewstuart | Hacker News Reader

You're speaking with confident 20/20 hindsight.

Who, realistically until now has had “bank goes bust” on their risk list?

“Crypto exchange goes bust”, almost a certainty, but “major bank goes bust”, I don’t think it’s reasonable to criticize for not having five distributed bank accounts.

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This line of thinking infuriates me. As an individual, I risk manage my deposits by making sure I remain under federal insurance limits by spreading my investments among multiple institutions (the FDIC limit isn't that relevant to me but the $500k SIPC limit is). Yet somehow "sophisticated" VCs aren't able to tell their partner companies how to manage the millions they hand them? There are straightforward, simple ways to increase insurance limits (primarily by services that automatically distribute deposits among multiple banks, like MaxSafe and IntraFi). The was just fundamentally poor asset management by VCs who got on the "well, everyone else uses SVB you should too" bandwagon.

"well, everyone else uses SVB you should too"

Which is not even true because it is a tiny no name bank. Prior to this debacle if you asked an American to name a bank nobody would have said SVB.

Most Americans not being able to name it is not a good standard for bank size. Banks like SVB exclusively have businesses as customers and most Americans do not run businesses. It’s not a tiny no name bank by any reasonable measure.

You've misunderstood. When I said a VC says "everyone else uses SVB you should too", by the "everyone else" I was referring to other VC-funded startups, not the American populace at large.

It was apparently the 16th-largest bank in the US. I live in SV but wouldn't have guessed it was that big. I'm sure it's much, much smaller than the #1 bank, but it's by no means a "tiny" bank in objective terms. It may not be well known in most of America, but it was a very large bank.

America has about 5000 banks. Most banks outside 5-6 are no-name banks.

As an individual, you have much lesser money to spread around than a company. If a company with 25+ million in cash has to manage more than 100 accounts, they are more likely to make some other banking mistake and lose some of that money through some administrative mistake.

That said, I sympathize with your broader point. With hindsight, it would make more sense for a company to have a brokerage account, and do something like invest their cash 1/3 each in 1-month/2-month/3-months Treasuries, rolling over every month.[1]

But most tech CEOs/founders of tiny startups probably don't know much about finance, and I can't really blame them for just putting their cash in a large bank.

[1] There's a startup opportunity to build this product right now, a pure custodian-style cash-management "bank" for small companies.

> If a company with 25+ million in cash has to manage more than 100 accounts

These products already exist. That is why I mentioned IntraFi (https://www.intrafinetworkdeposits.com/) and MaxSafe (https://www.wintrust.com/maxsafe.html). There are standard cash management accounts, https://www.moneycrashers.com/cash-management-account/.

> But most tech CEOs/founders of tiny startups probably don't know much about finance, and I can't really blame them for just putting their cash in a large bank.

Completely agree. But this is exactly the type of area VCs should be there to assist with, even if just purely for self interest.

> There's a startup opportunity to build this product right now, a pure custodian-style cash-management "bank" for small companies.

Again, these already exist, and are literally called "cash management accounts".

Also, though, it wasn't just SMBs. Roku had nearly $500 million, a quarter of their cash, in a plain old SVB bank account!! Why they wouldn't put more of their money in 3 month TBills earning nearly 5% is beyond me.

> Who, realistically until now has had “bank goes bust” on their risk list?

Every corporate treasurer. This is a core function of a CFO. I didn’t realise the degree to which this was missing in Silicon Valley so soon after a global financial crisis.

Startups don’t hire CFOs until the revenue is in 10s of millions of ARR. And most companies don’t ever get there.

I, and others, would never keep more than $250k in a bank account even before this SVB debacle. There are products made to manage this risk. For example, Mercury gives you up to $1M of insurance by sweeping to four different banks on the back end without you having to lift a finger. You can also sweep excess into money market funds.

I do have sympathy for 20-something founders who were too young and unaware of these risks, and focused on other aspects of their business, but this is not a “hindsight only” kind of thing.

Really?!! There's a reason the government insures deposits, but up only to a certain amount. Because banks go bust pretty frequently. Of course this is the sort of think that should be on your risk register, whether you're an individual or a company.

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