Investing in startups that make no profit is a risky business. The volume of money that's poured into tech startups over the last 10 years has been insane, anything that breathed was having money showered on it. It's as if risk control was just thrown out of the window.
SVB collapse could mean a $500B venture capital ‘haircut’
161–170 of 181 posts
Re: SVB collapse could mean a $500B venture capital ‘haircut’
#162But why were these companies holding so much money in an uninsured account? I heard something mentioned about SVB incentivizing them somehow? I can't understand why these companies didn't put the money in short term treasuries instead of keeping the money uninsured. If they needed short term liquidity it would not be a problem. Did SVB have an obligation to give them floating interest rate without properly adjusting…
To try to answer the first question: It's about who your customers are. If you're a business with 30 employees all making 150k/yr you have 375k in payroll costs every month. Holding even 1 months payroll in cash puts you above the FDIC limit of 250k. Normal people rarely need more than 250k in cash so the ratio of business to normal people in customer base matters. To make things worse let's say you're VC funded and…
Thanks! They wouldn't even need to keep them in 1m treasuries as overnight rate has been above 2% since last summer and is now above 4%. Also they could just have opened accounts in more banks and have their deposits secured. SVB was in all practice insolvent already last summer. I don't think all these customers could be idiots so there must have been some incentive which rewarded them for keeping the money unsucred I think.
Re: SVB collapse could mean a $500B venture capital ‘haircut’
#163Earlier quoted context omitted.
Break up your deposit into 250k$ accounts, each insured by FDIC. Let software handle the logistics of payments via multiple bank accounts. Asking depositors to do the due deligence is a strawman.
> Asking depositors to do the due deligence is a strawman. Except that there are many commenters in this exact thread making that argument. As for splitting up your deposit into $250k chunks, I agree, companies should do this as much as possible. But it would be hard for some companies. An extreme case is Circle, who says they had $3.3 billion in SVB. To get all of this covered, would require 13,200 different banks.…
Circle is an extreme case with over 100MM USD of revenue each year and whose primary product is memory management. I'm fine saying that they have to do due diligence.
Sure, I don't want depositors to have to do tons of due diligence to manage a small business payroll. But I am also fine saying that a company with over 2 billion in USD should be able to afford to find safe places to stash it.
Re: SVB collapse could mean a $500B venture capital ‘haircut’
#164Earlier quoted context omitted.
Inflation was surging well before the Ukraine invasion.
The virus lockdowns ended and manufacturing supply chains have been clearing. Please tell us why price increases are continuing, instead of dramatically dropping.
Why wouldn't you expect price increases to continue?
Re: SVB collapse could mean a $500B venture capital ‘haircut’
#165Earlier quoted context omitted.
Break up your deposit into 250k$ accounts, each insured by FDIC. Let software handle the logistics of payments via multiple bank accounts. Asking depositors to do the due deligence is a strawman.
Why? What is anyone gaining by forcing individuals and businesses to utilize middlemen to split their cash across dozens of bank accounts? Just guarantee deposits for all and skip the performative complicated BS. Spread 250ks all comes out of the same fdic pool anyway, so why bother?
Exactly. The 250k limit is clearly meant to ensure individuals don't have to fear bank runs. Saying companies should split accounts so that they all remain close to 250k is clearly a hack that goes against the intent of the law.
I think the government should reserve the right to haircut large depositors in cases where there is serious negligence or malfeasance, so it makes sense to have the limit. But it's also a good idea not to do that in cases of mere incompetence, like here.
The alternative is to do like Canada and basically keep around a handful of big banks and make it illegal for them to acquire each other (to avoid further concentration). We don't have to rescue them basically ever... but if we did it would be abysmally expensive. And customer service is garbage.
Re: SVB collapse could mean a $500B venture capital ‘haircut’
#166Earlier quoted context omitted.
It's delusional to think that this won't have effects on most HNers employment/salary. So be careful what you wish for
Don't care. It was all inflated salaries from unprofitable companies who depended on pumping VC cheap capital every month. They need to now show that they are profitable. We also will now see which startups can afford to hire developers at over $350K/yr + bonus + stock options in an adverse, unfavourable market without VC capital. Oh wait... None.
Exactly. The gravy train was powered by hopes and dreams and leverage not profits.
Re: SVB collapse could mean a $500B venture capital ‘haircut’
#167Earlier quoted context omitted.
Break up your deposit into 250k$ accounts, each insured by FDIC. Let software handle the logistics of payments via multiple bank accounts. Asking depositors to do the due deligence is a strawman.
> Asking depositors to do the due deligence is a strawman. Except that there are many commenters in this exact thread making that argument. As for splitting up your deposit into $250k chunks, I agree, companies should do this as much as possible. But it would be hard for some companies. An extreme case is Circle, who says they had $3.3 billion in SVB. To get all of this covered, would require 13,200 different banks.…
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Re: SVB collapse could mean a $500B venture capital ‘haircut’
#168Good. All those 0% interest leveraged VC funds can go burn in a fire. They pumped stupid money into companies and inflated valuations. Now that things are getting saner with real interest rates above 0 and getting higher sanity will reign again in the markets.
It's delusional to think that this won't have effects on most HNers employment/salary. So be careful what you wish for
What's somewhat bad for the <1-5% of the nation isn't also bad for the rest of the workforce. Sane interest rates benefit all especially when it comes to valuations.
Re: SVB collapse could mean a $500B venture capital ‘haircut’
#169why are we all acting as if its impossible to have a bank that DOESNT spend all the depositors money on god knows what positions? imagine if you will, some kind of place you could deposit your money, and they WOULDNT get to gamble with it, outside of with consent. imagine the depositor being able to say "i wish to allow the depositors to be used for whatever the bank pleases", or "i wish to not participate in this"
What would they do with the money then, just keep it under a matress ?
Why would anyone do that for anyone ?
Don't get me wrong I agree with you, I just think they would get steamrolled by those who use depositors' money to gamble.
Re: SVB collapse could mean a $500B venture capital ‘haircut’
#170Earlier quoted context omitted.
Why? What is anyone gaining by forcing individuals and businesses to utilize middlemen to split their cash across dozens of bank accounts? Just guarantee deposits for all and skip the performative complicated BS. Spread 250ks all comes out of the same fdic pool anyway, so why bother?
Exactly. The 250k limit is clearly meant to ensure individuals don't have to fear bank runs. Saying companies should split accounts so that they all remain close to 250k is clearly a hack that goes against the intent of the law. I think the government should reserve the right to haircut large depositors in cases where there is serious negligence or malfeasance, so it makes sense to have the limit. But it's also a goo…
Spreading the deposits out is the point, it's not a hack at all. If 1/3th or 1/5th or whatever of your deposits are locked out you can still make payroll and carry on while the odd bank hiccup is sorted out, and a haircut will affect a smaller fraction of your deposits. Meaning you don't need to be on a hairline trigger to pull out at the first sign of trouble. Having the big players keep their money in multiple bank accounts adds stability in itself.