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Comment by gerad | Hacker News Reader

When you start a startup, especially a venture-funded one, you really only want to be innovative in one area: your core offering. It doesn't make sense to spend an innovation token on your bank. So you go with something tried and true, that's done it a million times before with a million other startups. That was SVB.

Going with something else has potential downsides that you may not even be aware of (as the OP describes).

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Seems like this conventional wisdom about innovation tokens was actually very poor in this particular area. Makes me wonder what other bad decisions might be lurking behind that best practice.

Although, things worked out in the end for depositors, likely in part because it was a high-profile, “safe bet” bank.

Honestly, this is generally the way the FDIC has done it. I don’t recall any uninsured depositors at Wamu getting screwed either in ‘08.

Because they got bought.

Uninsured Indymac depositors got $0.50/dollar and usually, an uninsured depositor at a small bank can expect $0.60-0.75/dollar.

Yes, and the FDIC brokers those sales rapidly and with vigor.

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.

Was it very poor?

Other than a weekend of stress, what was the actual downside to a founder of using SVB?

> Was it very poor?

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.

Does the outcome justify the risk if the outcome could have gone radically differently?

Is driving without a seatbelt not a poor decision if one walks away from the wreck?

What seatbelt was someone not wearing in this case?

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.

I didn't know about this until reading things throughout this weekend (which is somewhat telling), but evidently there are a number of approaches that businesses use to avoid having essentially all of their money held as uninsured deposits in a single bank. Those approaches are the seatbelt that we seem to have largely chosen not to wear.

You are referring to insured sweep accounts?

It’s also something that I have only learned this weekend although I was never in a position to need one

Yeah pretty much.

Sounds more like you are describing Chase bank. It’s tried and true and millions of businesses from small mom and pops to fortune 10 companies use them. They’ve seen it all and could even be an underwriter for your IPO. They can take you from idea to exit.

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