Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Ask HN: How is the SVB situation affecting your startup?

news.ycombinator.com

Post reply on HN
Print view View original

61–70 of 200 posts

Re: Ask HN: How is the SVB situation affecting your startup?

#61

Post by gizmo »

Lightbody wrote: post #55

Disclaimer: I know next to nothing about the financial system or banking inside baseball. This is just one founder's reaction to the whole mess. We were reluctant to move our funds most of the day yesterday. Felt like a lot of dumb panic. We had emails from a few investors, most saying "stay calm" but one saying "move your money to this bank that I'm invested in!" ugh. We decided near the end of the day to move at le…

When assets This isn't just a liquidity problem, this is a solvency problem. The bonds they have aren't temporarily worth less because nobody wants to buy them, the bonds are liquid and have a fair market value based on the current interest rate environment.

Your cash isn't at the bank anymore. Your cash has been invested in bonds and those bonds are now worth less than the number you see in your bank account. That's bad.

Re: Ask HN: How is the SVB situation affecting your startup?

#62

Post by blitzar »

dahdum wrote: post #53
lolinder wrote: post #11

Earlier quoted context omitted.

By investors I'm not talking about venture capitalists, I'm talking about the stock market. I'm just surprised that people are just now realizing how bad it is to have the lion's share of Silicon Valley's financial resources centralized in one institution that doesn't have much in the way of other business.

Their success is due to their tight focus though isn’t it? They’ve been around for 40 years and deeply entrenched in the VC ecosystem. I am very curious whether their poor risk management is new , or if they’ve been playing fast and loose for much longer and only blowing up now.

Since 1980 interest rates have only really ever gone down. Buying long dated bonds at X% and having to sell them a year later at X-1% actually makes you a capital gain.

Old habits die hard.

Re: Ask HN: How is the SVB situation affecting your startup?

#63

Post by paraselene_ »

lotsofpulp wrote: post #6
hkhanna wrote: post #2

Personally, I don't think there's a real problem unless everyone panics. Banks are well-regulated and stable and have been for decades. That said, my investors & cofounder have both expressed gratitude that our startup banks with Mercury and not SVB.

Technically, you are not “banking” with Mercury: > Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group and Evolve Bank & Trust®; Members FDIC.

On that note, what's the deal with Evolve? I've seen them being the banking service provider for quite a few fintech companies already like Transferwise and BlockFi and else?

Re: Ask HN: How is the SVB situation affecting your startup?

#64

Post by JumpinJack_Cash »

Can we stop for a second and comment on how tailoring a bank to startups is a bad idea?

You don’t get any exposure to any of their potential hyper-growth in the form of debt/equity.

All you get is the deposits but they also don’t grow, the total just becomes concentrated in the accounts of the few survivors while all the other accounts go to zero as most startups die.

Re: Ask HN: How is the SVB situation affecting your startup?

#65

Post by ak_111 »

Lightbody wrote: post #55

Disclaimer: I know next to nothing about the financial system or banking inside baseball. This is just one founder's reaction to the whole mess. We were reluctant to move our funds most of the day yesterday. Felt like a lot of dumb panic. We had emails from a few investors, most saying "stay calm" but one saying "move your money to this bank that I'm invested in!" ugh. We decided near the end of the day to move at le…

May I ask you why do you sound so calm and confident that your money will not evaporate permanently (above the FDIC guarantee)? Banks going bust is a totally normal thing in a capitalist system, and bigger more established banks than SVB have done so only a decade ago.

Re: Ask HN: How is the SVB situation affecting your startup?

#66

Post by ak_111 »

JumpinJack_Cash wrote: post #64

Can we stop for a second and comment on how tailoring a bank to startups is a bad idea? You don’t get any exposure to any of their potential hyper-growth in the form of debt/equity. All you get is the deposits but they also don’t grow, the total just becomes concentrated in the accounts of the few survivors while all the other accounts go to zero as most startups die.

It is a great idea in a 0% interest world, SVB's stock price went from $24 in 2010 to $710 in 2020.

Re: Ask HN: How is the SVB situation affecting your startup?

#67

Post by rahimnathwani »

chasely wrote: post #48
karpierz wrote: post #18

Earlier quoted context omitted.

The issue is not that SVB has loaned too much to companies that can't pay it back. The issue is that SVB took in a lot of deposits in 2021-2022, and locked them into 10 year bonds at 2.5% interest. Now in 2023, a lot of their customers are burning money (withdrawing funds) and aren't raising money (depositing funds), and so they need to start liquidating the 10 year bonds. The issue is that the 2021 bonds are discoun…

Why would they buy 10-year bonds when their depositors are startups, many of whom won't exist in 10 years? Seems like shorter-term T-bills would have been more appropriate, but I know next to nothing about finance.

Because the yield curve is usually upward sloping.

Banks lend for long periods on the expectations that deposits that are withdrawn by some customers are balanced by new deposits from others.

But of course in the current environment there aren't a ton of startups depositing recently-raised funds.

Re: Ask HN: How is the SVB situation affecting your startup?

#68

Post by meltyness »

kasey_junk wrote: post #10
lolinder wrote: post #5

> most startups in the US bank with them Is this true? And if so, how was this not a major red flag for investors earlier? From what I gather as an outsider, it sounds like SVB has most of its assets in the form of loans to tech startups and most of its liabilities in the form of deposits from tech startups. This seems like an obvious recipe for disaster in the event of a tech downturn, no? EDIT: People have clarifie…

SVB has an extremely low loan to deposit ratio (~.45). Most of their assets are in the form of treasuries, bonds, etc. Depositor concentration is definitely high but that’s not particularly uncommon in banks (though for one of this size it is). But that concentration is what fueled their growth as well.

The eye-opening number was 70% equity to deposit ratio. They were apparently betting the farm on the "there is no alternative" narrative.

Re: Ask HN: How is the SVB situation affecting your startup?

#69

Post by [deleted] »

KerryJones wrote: post #50

Investor here (trying to buy into SVB), but I don't currently own anything, nor do I have any current accounts with SVB. Everything I can see about them is completely overblown. Short and sweet version of research so far: - They had sold their bond portfolio for 1.8B loss (originally 21B, this is 8.5% loss) - They decided to raise money to match that loss (news release on 3/8/23) - Headlines are confusing people with…

[deleted]

Re: Ask HN: How is the SVB situation affecting your startup?

#70

Post by AdamJacobMuller »

chasely wrote: post #48
karpierz wrote: post #18

Earlier quoted context omitted.

The issue is not that SVB has loaned too much to companies that can't pay it back. The issue is that SVB took in a lot of deposits in 2021-2022, and locked them into 10 year bonds at 2.5% interest. Now in 2023, a lot of their customers are burning money (withdrawing funds) and aren't raising money (depositing funds), and so they need to start liquidating the 10 year bonds. The issue is that the 2021 bonds are discoun…

Why would they buy 10-year bonds when their depositors are startups, many of whom won't exist in 10 years? Seems like shorter-term T-bills would have been more appropriate, but I know next to nothing about finance.

They made a gamble that if they needed to redeem them early that they would be able to do so without much penalty and that they wouldn't need to redeem too much if any (new deposits would cover old assets).

They lost on multiple fronts, interest rates rose so much that it became a huge loss to sell these bonds, the tech market slowed down meaning that fewer companies were getting infusions of cash and more of them were burning through their cash piles and the final death knell was that word of all this got out and it started a bank run.

Post reply on HN