Just one anecdote of many. I'm a founder of a bootstrapped startup. We are/were with SVB. On Thursday I tried to get a Brex cash account setup to move some operational cash there but it didn't happen in time. I thought of wiring money out of SVB to my personal account but decided it felt too dodgy. Payroll for 2 weeks ending March 15th had to be funded through Gusto by tomorrow (March 13th). So I did all I could do without delaying payroll, dropped my salary to near zero and wired the payroll money to Gusto from my personal checking account. Being bootstrapped and low headcount this was possible. I'll have to retrospectively do some loan paperwork I guess. It would have been a tougher comms to staff if I didn't happen to have enough liquidity personally.
i had to do this once during a clerical fuckup with our payroll provider.
the accountants just classified it as a reimbursed expense. you just comp yourself the exact same amount as the payroll and it isn't taxed as income.
in general accountants have ways of dealing with all sorts of edge cases, but you need to keep REALLY good documentation and notes about what/why/how, etc. "i thought the bank was going to collapse, and then it did" is a pretty good reason.
wiring yourself the money and moving it to a new business bank account would have been perfectly fine too - you're simply moving the cash to another location. in fact i'm pretty sure that's what most people who got their money out of svb did - very few small businesses have multiple checking accounts.
Not a lawyer, but I would be pretty comfortable with SVB -> personal account if you documented why and communicated about it in advance with board/counsel. (Obviously the next step would be opening a Chase/etc. account and sending the funds on to that, not using your personal account for company business on an ongoing basis, but a limited number of emergency transactions should be fine.)
Given the disaster and nearly unprecedented nature of these events I doubt anyone would bat an eye at a CEO taking the decisive action to do what needs to be done to survive (and fix it later). For many the past few days have been the startup equivalent of "fog of war".
As others have noted it's not embezzlement/commingling and given the scenario "Wire out from SVB corp account to personal, document exact amount, and wire back to corp $NEWBANK a week/days later, document again" would hardly cause any heartburn now or down the road. Many would see it as responsible, proactive, and heroic.
Depending on the amount the only issue would likely come from your personal bank - I know of people with ~$10m at SVB and I have to imagine all of sudden wiring those kinds of funds to a personal account with an average daily balance that's a fraction of that would raise some alarms on the personal account - or maybe not as I can imagine the big big banks (BoA, etc) probably saw a lot of this on Thursday...
FWIW, on Thursday it wasn’t clear to me I had so little time to get money out and part of me felt like contributing to a bank run, before it was clear there was a bank run, was not being a good citizen. Still not sure how I feel about it all. SVB staff were great over the 10+ years we banked there. Tech was always crap but I liked the people. Very sad all around.
My startup has about $25k in SVB - but we don't have payroll and I have personal access to that without impacting me if push came to shove (paying contractors, etc). I was aware of the situation and probably could have gotten the funds out but I knew we were well below the FDIC threshold and just didn't want to bother with it (frankly). I would have had more anxiety executing the wire and waiting for it to show up on the other side...
Speaking personally I'm actually kind of curious to see what the FDIC process looks like - in the grand scheme of things it makes you part of a relatively small club! While I know people are suffering and the situation is a lot worse for many I'm actually looking forward to telling the story when appropriate.
The general population is already fascinated by startups and I've had more than a few "civilian" friends reach out to me asking about the SVB situation. When I tell them we're kind of impacted but not really they just kind of chalk it up to another "Wow, startup life is so wild even THE BANK failed".
Additionally I'd say the same - through various startups I've worked with SVB for over 15 years and the people have always been great (systems not so much).
I totally agree re "contributing to a bank run" feeling shitty, but you have more obligation to your employees (especially), investors, and customers IMO than to your vendor (the bank). Congrats for being able to cover the payroll regardless, though.
(I am pretty confident there will be at least 250k + 50% advance-dividend early this week, and still optimistic but far from certain that a buyer will take the whole thing and it will be 100%. Last time people actually took losses of 50% above the FDIC amount (100k at the time) was 2008 (IndyMac).)
Comingling is. In this case there is a clearly articulable reason why ("our bank is going out of business"), and it's temporary, documented, etc. The twin risks to avoid are appearance of embezzlement, and appearance that you're treating the business account and personal account as one (which potentially allows piercing corporate veil/attaching personal assets), but if your building is on fire, you're allowed to break the window to rescue the kitten.
It's an "antipattern" (and usually a strong sign that something is badly wrong) but it's not illegal... "sinful" is a useful hint that something is "norm" related.
Also nal and naa but no: it's "comingling" that's bad. If you explicitly document the transactions, don't do it all the time, and ideally use matching amounts in and out, it's not comingling.
That is far more common in the US (basically paying expenses on your personal cards, expensing to the company after the fact). You can also advance on some expenses sometimes (this can be abused so there are some accounting restrictions on how you'd do it, etc.).
What is weird/scary (especially when not documented clearly and in advance) is moving your entire bank balance into a personal account. Aside from government/tax/legal, you'd have your investors (in a venture/angel backed company) to justify it to. It's justifiable in this truly exceptional case of SVB imploding and no other bank account being available. (It gets harder to justify in a larger company with lots of investors and more money involved; moving a $100mm balance in a company where you were down to 10% ownership to a personal account even in this situation would be weird AF and depending on the banks involved might cause you problems. I probably still would have emailed counsel and investors/etc. on thursday morning to ask what to do; likely would have sent it to lawyers to handle actually in the huge-account situation.)
Also, imagine the case where you do this and you're wrong. You panic but you're in the minority and there's no bank run and a week or two goes by and the bank is still fine.
Now you've got a weird thing to explain and no vindication.
Philosophical problem of "justified true belief"/Gettier problem. (https://en.wikipedia.org/wiki/Gettier_problem -- I learned about this from one of the Rap Genius founders when I was back in YC, lol.)
Generally the law handles this through the "reasonable man" standard; i.e. "would a reasonable man, knowing what you did at the time, have done what you did?" This would allow you to shoot someone in self-defense who was holding a realistic looking toy gun at a child (which you believed to be a real gun, unlawful intent, etc. at the time).
If you're not a lawyer, in this case, it's not really relevant what your comfort level is with business dealings. If you're a professional with appropriately relevant skills and expertise, I'd rescind my comment.
For others who might be in the same position, it might be worth contacting your payroll processor. Ours, justworks, indicated that we could wire them the money on the invoice processing day and still make payroll. (That will be either Monday or Tuesday, I forget which - we somehow got really lucky; our payroll ACH got pulled right before the shutdown)
after being here for over 10 years (not on this account), i've observed that hn is basically split into two groups: people with money, and people who don't have much of it.
the people with less money are much more vocal about it, for obvious reasons.
What you state is perhaps obvious, I would not even bother to open a new account to conceal my identity just to say that...
It is a bimodal distribution of (1) the lucky ones and (2) the ones either "not yet lucky" ones (1/10) or the "never lucky"ones (9/10).
I find it refreshing to hear stories about how things did _not_ work out (from the sources). It is much harder to get the real stories behind the successes because people tend not to ascribe things to luck but create some story after the fact in the same way, as they say, "the winner writes the history".
if you believe in good luck, do you believe in bad luck? you frame it as "not lucky" instead of "bad luck".
in other words, if you ascribe success to nothing in particular other than luck, why do you put more stock in the negative case? couldn't failure be caused by nothing other than bad luck?
reading failure stories to look for what to avoid might not be the right strategy if you believe in a world where luck dominates.
My personal bank is Bank of America. I paid the $30 to do "1 business day" I read that as if I did it on Monday it would land Tuesday. Gusto was saying it had to be funded by Monday. Perhaps it would have worked out fine that funds would be unlocked on Monday and Gusto would have been fine with wire initiated on Monday, but this was Friday and everything seemed on fire.
FWIW, Just looked at the screenshot of the wire completion and it does say "Same day". But I did it at after 8pm. Anyway, I felt I did the safest thing to keep the staff from freaking out and for me not to be too stressed through the weekend. I'll have enough headaches moving banks the next two weeks to also be worried about payroll.
Got it. So you are unfamiliar with the wire system. Most people are. I actually don't have anything good to say about it. (Sidenote: 24/7 crypto is far better, but crypto is still a bit of a wild west so I don't recommend for people who aren't comfortable being early adopters)
You are learning a lot and sounds like you figured out a way to not have your employees see any hiccup. Well done.
Thank you for replying and providing more info.
Nowadays one must assume ChatGPT bot/shill when talking to a new account.
Hacker News is full of people who believe anything they read on this site if it fits the narrative, even if it is from a throw-away account that clearly doesn't understand the banking system.
As an owner who feels responsible to your staff, and who feels bewildered by the sudden closure of your bank, you may not trust what you think you know.
Securing alternative funding for your payroll makes sense and is commendable.
Uh yeah, in the very unlikely event that you find yourself explaining to your staff why payroll hasn’t been run, about the last thing you want to lead with is “Well, see, after our our bank failed, I assumed…”
> FDIC insured funds haven’t been disbursed yet right?
The bank was closed on Friday, and at the time an announcement was made that the Deposit Insurance National Bank of Santa Clara would open with all insured deposits on Monday (this will not happen if between now and Monday a buyer is found and that bank instead takes over operations on Monday.) There’s not really a “disbursement” of insured funds, just a transfer to a new bank, which may or may not be run by the Federal government.
For uninsured funds, the announced plan (which also might be cancelled if a bank takeover provides better terms for them) is to provide an initial dividend during the week, and a “receivership certificate” for any remaining uninsured balances. Most likely (given history) a bank takeover would also preserve uninsured balances as normal deposits at the new bank; but that’s not guaranteed.
As of about an hour ago, the government through some weird indirection is basically guaranteeing 100% of the par value of all the assets, so SVB or the DNIBoCA (I guess? honestly not sure which) should re-open Monday AM with 100% of assets available to depositors. i.e. bullet dodged.
Maybe it’s not fair to compare Garry Tan to sama in this situation because Garry is the current president and sama is the former, but, it’s nice to see sama’s measured response compared to Garry’s.
Garry is shouting from the rooftops that more than a million jobs are going to be lost if the fed doesn’t immediately do something (that we all know it isn’t going to do). I wouldn’t want to be a YC startup right now, listening to Garry stoke panic.
The fdic and fed probably will do exactly what Gary Tan and many others recommended - no bailout of the company or shareholders but organise a facility so that the depositors get 100%.
They’re trying to sell it first but if that doesn’t work they don’t really have other options if they don’t want to be dealing with massive job losses and multiple bank runs next week.
That’s not necessary though unless we are to believe that a meaningful amount of money has disappeared. The FDIC offers insurance with a limit for a reason, it’s a fantasy to believe that the FDIC are going to invent a brand new standard of deposit protection because some companies might be forced to take a small haircut on their money.
The bank will re-open, companies will get most of their money, and life will carry on. The FDIC aren’t going to guarantee 100% of deposits, and shouting from the rooftops that a million jobs will be lost if the FDIC don’t do it (which they won’t) is panic-inducing for no discernible reason.
Edit: I intentionally took one for the team by embarrassing myself with a claim disproven less than an hour later. You’re welcome.
I'm not sure it's as simple as that if the fed don't guarantee deposits, but we'll see tomorrow I guess. The impression I had was these assets can't just be sold right now, today, without booking substantial losses.
Getting 90 cents on the dollar is not 'massive job losses' and most people outside of tech (SV VC tech precisely) think that the bank run risk is massively overblown.
Anyway we'll see what FDIC does. They're good at what they do.
Isn’t this quite unusual (a bank run at a large US bank)?
I agree the fdic has done this before and if they can find a buyer or communicate well it should turn out fine next week.
There is a risk of contagion though and a risk of job losses if money is delayed for say 6-12 months. I don’t think it’s unreasonable to be worried about it if you’re impacted.
Is there the opposite list? VCs like Ackman, Sacks, Calcanis, Cuban all firmly belong on it. Nothing from them but blame directed at others (biden, yellen, zelinsky, the fed, fdic, regulations – everyone but themselves), dangerous misinformation (including fake photos and videos of bank runs), and demands for an immediate government bailout. I wish someone would compile a video of how quickly these "rugged libertarians" have done a 180 on their views on regulation and "socialism" now that their own money is on the line.
Right below that there’s another bracket of “trying to tweet through it”, a lot of the folks behind the We Support An SVB Successor thing, which then, as Paul Graham did, lectured people that they can’t really do anything because their LP agreements forbid it.
Didn’t know YC was a non-profit and Paul’s involvement was a $85k salary and no carry/returns…
Push came to shove, some people stepped or are stepping up, some didn’t.
If someone created a twitter bot right now that was able to pull old hard libertarian tweets from these people and post them as replies that would be...entertaining. Hypocrite-bot?
Q from outside the US: why is capital needed for payroll mid month? Are there some automatic insolvency processes if it is missed by a day? Why do the companies fall apart if there is just a few days of payment delay? (I mean it is obviously a shit situation, and having to tell the team payment might take a few days more than usual is bad, I am just surprised how 2 days of no-cash seem to wreak havoc…)
Most companies in the US do payroll on either a 2 week cycle (which sucks because some months you do 3 and some times you do 2), or 1st and 15th (or otherwise twice a month). March 15 is a very common payroll date.
They're batch processes, done by dedicated payroll firms, since there are lots of tax/other obligations as well.
Missing payroll by even one day causes 1) lots of drama with employees 2) starts some legal problems 3) potentially screws up people's healthcare/other benefits 4) potentially causes tax problems. Some of this is with the state, some federal.
Payroll is basically the second to last thing you want to miss (certain government obligations above it, since they have liability for the officers directly).
(This is mostly because employers are presumed to have a lot of power vs. employees, and generally do, and there have been a lot of historical abuses of companies paying people slowly, withholding wages, etc., which puts the employees in a position of "do I quit and guarantee I don't get paid, or do I work a little bit more and maybe collect what I'm owed" and then companies continuing to abuse it...)
Quite interesting, here in the U.K. it’s generally monthly payroll, usually towards the end of the month, something like closest working day after the 25th is common
In Puerto Rico (where I live) there's an even weirder system -- people usually get/expect (and certain classes of employment obligate) a "13th month" check. Pretty common in LaLtAm; exists in some of Southern Europe too.
Some people like the "extra" checks of a 2 week cycle. Others prefer twice monthly cycles because it better aligns with expenses like mortgages and utilities.
Lots of people like the extra checks, but very few companies like paying that way; it makes modeling so much harder. If you were doing weekly financials maybe but most companies do monthly.
I'm not sure. I've been with a company that's switched to a bi-weekly. But not sure of the reasoning. But probably something to do with payroll predictability.
Its $100 if it is both a first offense and not willful. For any willful or intentional delay, or a second or subsequent late paycheck regardless of willfulness, the penalty is $200 plus 25% of the payment that was due.
(And if any terminal paychecks are late, there are greater penalties – waiting time penalties equal to an average days pay for each day of delay up to 30 days – though I don’t recall if there is a wilfullness condition or modification to that.)
> Except Musk has established precedent at Twitter that you can just fire employees for cause.
“Established precedent” is…not a fair description of action which is being challenged in the courts, where no precedential legal decision has been made.
Also, firing employees would just make the California rule requiring immediate payment of final paychecks, with waiting penalties of 1 days pay for day of delay up to 30 days, applicable, as well as triggering other time-sensitive legal obligations that a company without access to cash might not want.
Plus, it means that once you get access to your cash again, you don’t have the employees (and might have a lot less positive image in the community you would want to hire from to replace them.)
On 1), you actually have even higher obligations to pay IMMEDIATELY if you fire someone, including for all other money owed (accumulated vacation/sick days, etc.)
a) most employees are paid every 2 weeks and b) there are laws that say an employer is committing a crime if wages are not paid on time. So any properly run business takes great care to ensure that adequate cash is on hand to cover wage commitments (not just the money due to employees but also taxes due to state and federal governments). When thar cash goes up in SVB smoke, that's a big and immediate problem. You could in theory be sued or even go to jail.
I don't know but... some companies used to pay me biweekly, every odd monday, then there is company used to paid me once end of month and another paid once per month but in middle of month, with limited accounting resources they pay bills twice, first of month for outside and middle of month for salaries and stuff
> Q from outside the US: why is capital needed for payroll mid month?
The US largely does payroll biweekly (every two weeks). Sometimes weekly, although usually not in tech. It isn't like Germany or whatever where payroll is only once a month.
> The US largely does payroll biweekly (every two weeks).
Weekly, biweekly, monthly, and semimonthly are all common; In most states, there are rules setting minimum frequency (and sometimes regulating on what days as well as frequency), and they may vary by industry and job type. E.g., for California: https://www.dir.ca.gov/dlse/faq_paydays.htm
Commendable of course but also feels like a no brainer. Depositors will almost certainly be made whole. Word will spread of the deed and the goodwill generated will more than repay the low-risk short term loan.
Based on my interactions with Sam, he doesn't seem like the kind of guy who would ever do this for PR. I think he just somehow became aware of this company and, in classic sama fashion, decided it should not fail due to SVB, reached out to the founders, promptly wired them money.
> Altman did not confirm the amount he gave to Rad AI, or any other startups, but Gurson told Reuters he would guess Altman has given at least $1 million to his startup and others.
> Sam has been sending stuck startups money today with no docs, just saying 'send me back whatever you can whenever you can'
May or may not be front-page worthy (and regardless of the PR potential / optics), this is Sam walking the talk, as it were.
Just so we're clear - this is the equivalent of me giving a co-worker I like who lost his wallet and his phone 100$ so that he can have lunch, dinner, get home safely, etc.
Related: Unfortunately, this tends to be a common fallback in many business when times are tough. My folks had to do this with their employees a few times when I was a kid. Other people in that industry had to too, from time to time.
As other commenters state, if you know that a boss does this for you, then you now know a good boss to have. Though, most bosses won't tell you they did it, obviously.
I don't really know much about venture capital but this sounds like a gross oversimplification.
More like, the startups that are saved will be a mixed bag of worthwhile startups and dead-end startups. Meanwhile some worthwhile ones will sadly be left behind with the dead-end ones.
The fact whether a startup has positive cashflow or not isn't really reflective of whether that is a worthwhile startup or a bad one, but rather whether it's at an early stage or a relatively mature one.
The most bestest startup in the world would still be relying on investor's money to pay the bills if it's just starting to build its product and the time to make it profitable will come in a year or two or more (e.g. a biotech startup can take many, many years until the product gets approved for patients and earns its first cent).
Yes, if a business has "grown up" from being a startup and is fully self-funding not only its operations but also its growth, then it will survive, but the definition of a startup is something that's still trying to reach that stage and isn't there yet.
> The fact whether a startup has positive cashflow or not isn't really reflective of whether that is a worthwhile startup or a bad one, but rather whether it's at an early stage or a relatively mature one.
For the past 10 years or so none of the "successful wrothwhile startups" have positive cash flows, and those that seemingly do still manage to post hundreds of millions of dollars in losses yera after year after year.
The whole modern startup business is either "work at a loss until a successful exit for the founders" or "work at a loss forever with no expectation of profitability for some reason".
> whether a startup has positive cashflow or not isn't really reflective of whether that is a worthwhile startup or a bad one
A start-up that fails because of this mismanaged their treasury, didn’t pull money in time, couldn’t borrow against their claims and couldn’t convince anyone to advance payroll. That’s reflective on leadership. It’s a teachable moment. But it points to deeper naivety.
Depends on your perspective. One of the articles of faith in this industry is that good startups get investment and succeed, while bad ones fail. To whatever extent that's true, it won't be particularly worse here. Startups who made treasury management errors and are experiencing cash crunches can make very good cases for bridge loans and extra investment from their existing investors. If their investors are like, "nah, pass" then that's a pretty good reason to question their potential generally.
> One of the articles of faith in this industry is that good startups get investment and succeed, while bad ones fail.
Is it? I thought it was that startups with exciting books and good networks get a chance to ratchet into the next round of funding.
Great startups drown all the time for not being a VC rocketship, when they they could have grow into a perfectly successful cruiseliner under traditional fundraising or bootstrapping.
If investors are “nah pass”, it’s more about making a quick decision about near-term finance opportunities than the mid-term or long-term strength of the underlying business. VC investors inherently care more about 10x exits than sound business practices.
I'm normally very against the HN norm of just naming a fallacy and considering an entire argument dismissed but in this case I think it does apply. This is not a Just World, some unworkable companies will get bridge funding because of their connections and no other reason.
Aside from that timing is always a thing. There's certainly a company out there that is 8 months away from proving the soundness of their idea that now only has six months of funding, or whatever.
The idea that in every case, "the market" or whatever will arrive at the most perfectly correct conclusion is silly at any time, but particularly in one of uncertainty and upheaval.
Yeah, I'm not arguing that "whatever will arrive at the most perfectly correct conclusion". (And I don't think that sql-spy was arguing that either.) What I'm saying is that I don't think this particular circumstance is going to be any less just than usual.
Indeed, I think there's good reason to expect it to be more just given that what we're talking about is mostly a short-term cash crunch that's easily explained. E.g., one company is raising $1 bn for bridge loans: https://techcrunch.com/2023/03/11/brex-ceo-is-trying-to-rais...
That kind of support is not something marginal startups have access to in normal times.
Running a startup means time is never on your side. If you are still 8 months away from proving "soundness" of your idea then you are already too late.
ok but I mean that means that whatever outcome arrived at is necessarily the correct outcome. you're establishing correctness post hoc and so you will always find it. have fun tho.
By design, venture-backed startups are about sticking a plate of spaghetti to a wall to look for the sticky bits. There are few sure tells of what startups are “worth saving” until they’re already quite successful.
Assuming that the SVB unwinding is more than a hiccup in cash availability, what will determine who gets saved will mostly come down to affinity and luck. Promise and value are a sort of first pass filter, but startups are just plain noisy and chaotic field.
"Startups that are worth saving will be saved" feels like the same category of statement as "It's always in the last place I look". They both describe common sense behavior (save things worth saving, or stop searching once you found what you're looking for). But they are not tautologies in the strict sense, you can make them false; and quite frequently they are false in practice, mostly due to imperfect information.
From a pure financial point of view Uber would never be viewed as a startup that was worth saving… for it’s investors the whole point of the IPO was to cash out and leave someone else holding the loss making baby
