my sympathy is with them but please someone explain why companies were putting millions in banks beyond FDIC limit with almost no interest. Could have managed it themselves in a brokerage laddering treasuries or hired someone to do so. This is what big corps do and with interest rates so high seems a no brainier.Would at least think their investors would have insisted on it.
Salaries, rent, debt payments, and AWS bills are charged in dollars. They don't accept T-bills, even though in accounting terms those are "cash-equivalent".
Notice how so much of the fallout is secondary to failed payroll transfers.
Big companies do the same thing, except their cash is kept in bigger banks with more attentive risk-management departments. Apple will never miss payroll due to someone at JP Morgan doing a YOLO on 10-year bonds.
Not an excuse, cash on hand needs can be handled by cash management accounts at one of the big financial institutions with cash in money market. Checking accounts are a lousy place to keep cash. At the minimum use Bank of America or similar with access to a linked Merrill Lynch treasury money market or similar.
Startup founders are usually not all that well versed in these best practices because it’s the first time they’ve been put in this situation and it’s a distraction from their primary focus to grow the business.
This company put $60 million into its deposit account at SVB. $60 million and they couldn't hire expertise? what about the VCs? Regardless of the risk aspect they were losing probably close to 4% on $60 million. But the risk aspect is not non-obvious. It's something every individual depositor having more than $250,000 is aware particularly after the 2007 financial crisis.
"Our business isn't to manage money, it's to build a product for end users." This is the attitude I see with startups constantly. If it isn't a direct concern for the core efforts of what they are trying to do, they ignore it entirely. It doesn't matter how much of an improvement an action gives because they have tunnel vision
I can't speak for U.S based founders, but for many foreigners wanting to incorporate in the U.S SVB was the only banking option. Stripe Atlas made SVB their sole banking partner and thousands of foreign founders relied on them for all their fundraising needs.
https://techcrunch.com/2023/03/11/silicon-valley-bank-collap...
