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Yikes. Does anyone have an idea of which orgs have significant exposure (like Molly White's FTX contagion graph[0])? [0] https://www.mollywhite.net/etc/ftx-con

Yikes. Does anyone have an idea of which orgs have significant exposure (like Molly White's FTX contagion graph[0])? [0] https://www.mollywhite.net/etc/ftx-contagion https://www.mollywhite.net/etc/ftx-contagion

TechBro8615 4y ago
40% of startups just had their bank accounts cut down to $250k, so... a lot.
- tedivm 4y ago
  I'm not sure how true this is. I worked at a startup that took in over $100m in investment, and I was curious so I asked the cofounder how they protected that. According to him the money was divided up into chunks smaller than $249k, pushed off to a custom entity made just for the purpose, and then invested in bonds or CDs on a rotating basis. I'm sure a lot of startups will be in trouble, but those that are working with decent investors probably had help protecting the assets.
  - e1g 4y ago
    The FDIC covers $250k per depositor, not per account, and specifically does not cover bond investments. Either your startup created 200+ entities to pull this off (good luck with the rest of compliance) and didn't do bonds at all, or the founder is misled.
    - tedivm 4y ago
      > Either they created 200+ entities to pull this off That's literally what they told me they did, and what I was trying to say happened here. It's possible he was misled, but he seemed pretty knowledgeable about this. The money initially came from Softbank, who helped with the process. Also, $250k per depository per bank. You can also distribute the money across multiple banks to get higher insurance levels.
      - costco 4y ago
        Why didn’t they just use https://en.m.wikipedia.org/wiki/Certificate_of_Deposit_Account_Registry_Service https://en.m.wikipedia.org/wiki/Certificate_of_Deposit_Accou...? I haven’t used it I just read about it in a Taleb book but it seems like it would be much easier than creating all the accounts yourself and you can interact with just one bank account instead.
        tedivm 4y ago
        I'll be honest, there's a chance that this is exactly what they did but that they didn't understand it or describe it properly. My main point was that there are ways to get protection beyond the FDIC limit, and your link shows a pretty reasonable way to do that.
      - e1g 4y ago
        Assuming legitimate operations, this strategy is highly atypical in corporate finance. There is no scenario where this setup has less cumulative risk than keeping cash reserves spread evenly across the top 2-3 banks. For a startup, this is a red flag about the founders' priorities, risk management, and ability to find professional advice. As an intuitive measure, extrapolate this idea to Apple or Microsoft, which keep ~$10B in cash on hand and also need to protect it.
        tome 4y ago
        > extrapolate this idea to Apple or Microsoft, which keep ~$10B in cash on hand Literally cash, as in deposits? Or highly liquid assets such as T-Bills?
        tedivm 4y ago
        To be fair the founder was really incompetent, and the money was pretty much wasted. When the company finally sold it was well worth what my strike price was.
      - postexitus 4y ago
        They either made the story up based on what they read on reddit or you are making it up now based on what you have read on reddit. There is a third possibility that that person being incredibly dumb and they actually believed what they read - but I give that a slim chance.
    - bombcar 4y ago
      At the $100m amount people may confuse FDIC with SIPC - https://www.sipc.org https://www.sipc.org What SIPC does is similar to FDIC but it basically comes down to "If you buy stocks via Vanguard, Vanguard guarantees that those stocks actually exist and that if they fail you get them, and SIPC helps with that".
    - a-r-t 4y ago
      Just a clarification: it's per depositor per bank.
    - notyourday 4y ago
      This is literally the primary job of the CFO: Making sure that if there's X in cash or cash equivalent at noon on March 9th, 2023 PST there's still X in cash or cash equivalents at noon on March 10th, 2023
    - squeaky-clean 4y ago
      Per bank. You can use something like IntraFi to distribute your deposits across multiple banks automatically.
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flutas 4y ago
Potential contagion: https://imgur.com/a/Xh6Kudp https://imgur.com/a/Xh6Kudp These are companies, sorted by PPP loan size who had SVB as their servicer.
- mydriasis 4y ago
  Holy cow, O'Reilly in the top ten. That doth not bode well.
- flutas 4y ago
  Something to note: This list is not exhaustive. There was about 3.8k companies with svb as their servicer. That also doesn't mean all of their money was in SVB.
majani 4y ago
Chipper Cash raised $150m from FTX and $100m from SVB. Ouch

TechBro8615 4y ago

40% of startups just had their bank accounts cut down to $250k, so... a lot.

tedivm 4y ago
I'm not sure how true this is. I worked at a startup that took in over $100m in investment, and I was curious so I asked the cofounder how they protected that. According to him the money was divided up into chunks smaller than $249k, pushed off to a custom entity made just for the purpose, and then invested in bonds or CDs on a rotating basis. I'm sure a lot of startups will be in trouble, but those that are working with decent investors probably had help protecting the assets.
- e1g 4y ago
  The FDIC covers $250k per depositor, not per account, and specifically does not cover bond investments. Either your startup created 200+ entities to pull this off (good luck with the rest of compliance) and didn't do bonds at all, or the founder is misled.
  - tedivm 4y ago
    > Either they created 200+ entities to pull this off That's literally what they told me they did, and what I was trying to say happened here. It's possible he was misled, but he seemed pretty knowledgeable about this. The money initially came from Softbank, who helped with the process. Also, $250k per depository per bank. You can also distribute the money across multiple banks to get higher insurance levels.
    - costco 4y ago
      Why didn’t they just use https://en.m.wikipedia.org/wiki/Certificate_of_Deposit_Account_Registry_Service https://en.m.wikipedia.org/wiki/Certificate_of_Deposit_Accou...? I haven’t used it I just read about it in a Taleb book but it seems like it would be much easier than creating all the accounts yourself and you can interact with just one bank account instead.
      - tedivm 4y ago
        I'll be honest, there's a chance that this is exactly what they did but that they didn't understand it or describe it properly. My main point was that there are ways to get protection beyond the FDIC limit, and your link shows a pretty reasonable way to do that.
    - e1g 4y ago
      Assuming legitimate operations, this strategy is highly atypical in corporate finance. There is no scenario where this setup has less cumulative risk than keeping cash reserves spread evenly across the top 2-3 banks. For a startup, this is a red flag about the founders' priorities, risk management, and ability to find professional advice. As an intuitive measure, extrapolate this idea to Apple or Microsoft, which keep ~$10B in cash on hand and also need to protect it.
      - tome 4y ago
        > extrapolate this idea to Apple or Microsoft, which keep ~$10B in cash on hand Literally cash, as in deposits? Or highly liquid assets such as T-Bills?
      - tedivm 4y ago
        To be fair the founder was really incompetent, and the money was pretty much wasted. When the company finally sold it was well worth what my strike price was.
    - postexitus 4y ago
      They either made the story up based on what they read on reddit or you are making it up now based on what you have read on reddit. There is a third possibility that that person being incredibly dumb and they actually believed what they read - but I give that a slim chance.
  - bombcar 4y ago
    At the $100m amount people may confuse FDIC with SIPC - https://www.sipc.org https://www.sipc.org What SIPC does is similar to FDIC but it basically comes down to "If you buy stocks via Vanguard, Vanguard guarantees that those stocks actually exist and that if they fail you get them, and SIPC helps with that".
  - a-r-t 4y ago
    Just a clarification: it's per depositor per bank.
  - notyourday 4y ago
    This is literally the primary job of the CFO: Making sure that if there's X in cash or cash equivalent at noon on March 9th, 2023 PST there's still X in cash or cash equivalents at noon on March 10th, 2023
  - squeaky-clean 4y ago
    Per bank. You can use something like IntraFi to distribute your deposits across multiple banks automatically.
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flutas 4y ago

Potential contagion: https://imgur.com/a/Xh6Kudp https://imgur.com/a/Xh6Kudp These are companies, sorted by PPP loan size who had SVB as their servicer.

mydriasis 4y ago
Holy cow, O'Reilly in the top ten. That doth not bode well.
flutas 4y ago
Something to note: This list is not exhaustive. There was about 3.8k companies with svb as their servicer. That also doesn't mean all of their money was in SVB.

majani 4y ago

Chipper Cash raised $150m from FTX and $100m from SVB. Ouch