Here's the twist: the closing of the Chase account led to Alex's career tanking. Thus began a downward spiral of his life. His wife left him and took the kids. He turned to the bottle and it got worse from there. He became indebted to the wrong people.
It was then he remembered that Hashicorp account. When he was shown the door at Chase, the account had a few hundred grand in it. Through knowledge of internal procedures and some social engineering, he began fraudulently obtaining funds from the account. He hoped they had forgotten that the account existed. It must be pennies to those people, they shuffle around millions without batting an eye.
Then, one day the cops show up at his seedy motel room. He was arrested for the fraud and found guilty. The judge was particularly heavy-handed and gave him 10 years, despite no priors.
Alex kept a picture of the founder of Hashicorp on the wall of his cell all those years, blaming him for the turn his life took. He did push ups and other exercises to keep himself somewhat sane. All the while, dreaming of the day he would get out and take his revenge.
Fast forward to today and Alex is recently released from prison. Biding his time, plotting his revenge...
Alex spends a lot of time on hacker news, hate-reading about these startup types that ruin lives. Getting into the mind of his enemy. One last twist, Alex is me! /s
Well, Hashicorp did more or less everything right. Except of building a working relationship with Chase in LA. Heck, the even conducted audits, and apparently no money was lost.
Hi Alex, I am a Hollywood producer working at a major motion picture studio responsible for films getting greenlit. Everybody around the office was buzzing about your idea as the basis for a potential screenplay and I was just about to offer you $750,000 for the story rights until an intern pointed to another story (we don't understand what most of the things discussed on your forum are) and we found out about this ChatGPT4 thing.
A few phone calls later and with early access to their product acquired - suffice it to say we were able to generate more ideas of similar caliber than we know what to do with for $0.75 and will be reevaluating our business practices going forward.
I wish you best of luck on your murderous rampage.
I founded a startup. We raised $2.5M, not all at once. We banked at SVB. It sucked. Subpar online tools. $200/mo “analysis fee,” never once had a “relationship” with anyone. Maybe we were never big enough to be relevant. That’s fair.
My advice: use a retail bank until you have a few million in revenue, then shop around. Make the SVB’s of the world earn your business. SVB in particular was so incredibly entitled.
I’m glad they failed more spectacularly than my little startup.
My startup, which raised $1.2M back in 2015, didn't have to pay any monthly fee -- at least until the balance dropped below some threshold in the 5-digit range at which point they started charging $15/mo, I think.
After that startup failed SVB courted me for a personal account. They actually came to me in person, took me out for coffee and stuff. I didn't even have much money at the time but they just seemed really interested in signing up startup founders (even failed ones).
For comparison I tried talking to Chase Private Client at their Palo Alto branch, since my old 401k had gotten big enough to qualify for their minimum if I rolled it over to them. The banker there practically sneered at me, acted exasperated like I was wasting his time and he had much bigger clients to tend to. Also gave me a spiel about their high-fees wealth management in which he asked leading questions about my investments and then tried to make me feel stupid about my answers so that I'd decide to pay Chase to manage it instead. This was all obviously a marketing shtick and I found it incredibly insulting. I went with SVB.
Yes, SVB's web site was ugly. Weirdly they had totally different ugly web sites for their business and personal arms. It functioned fine, though.
It's not relative to the bank but to the bank branch. I have an account with Chase and I made it clear that I'll be depositing $2K to keep the account on, and I would not be using it for day to day transactions. The branch manager was cool with that and we chatted for an hour or so about different stuff and he actually gave me some real advice.
This is not about Chase, it's about the branch and the branch manager. I'm pretty sure another branch manager will be annoyed talking to a $2k client in deposits with no in/out flows and might not even consider them for an account.
If you want to bank with a specific bank, shop for the branch.
True, a few years later, I now live in Austin and the Chase people here are a whole lot nicer to me. Maybe there's just too many ultra-rich people in Palo Alto, heh.
> The banker there practically sneered at me, acted exasperated like I was wasting his time and he had much bigger clients to tend to
I had a partial version of this experience with Charles Schwab. (I've been a banking customer for many, many years and have been very happy with them). When I left my first startup after the many year run up to the 2008 crisis, I decided to roll my fairly substantial 401(k) balance to my tiny Schwab brokerage account.
Waiting for the rollover check to arrive was nerve-wracking enough, so I decided to deposit it in person at my local branch in a major city rather than mail it to them and wait again. When I walked into the branch, the reception person looked me up and down and was warming up to tell me that no, they don't have public restrooms. Once I gave my account information, they became very friendly and once I plopped the check down on the counter for deposit, it was all coffee, juices, and pastries from then on. ;)
we started at $0 revenue and $2000 initial deposit at citibank. over the next few years we put $millions a year through them, carried a balance of $millions in combined checking and mmf, and sold our company for $millions. now my personal accounts at the bank are in $low-thousands, and my post-sale money is in investment banks.
nobody from citi ever called, or cared, or said anything when i went to the branch other than one time a teller asking me what our business did because he thought we were a tech company and he really liked cloud computing stuff. i was happy to talk to him about it, and that was it.
99% of banking is boring and uneventful, it's just numbers on a screen, especially if you live in an area where big bank accounts are common (certain areas of big states like ca, tx, ny, etc.)
anecdote on an anecodte: when we sold our biz, i tried to transfer ownership of the account to the new owner, and the branch manager couldn't actually make that happen. he said i needed to write a letter (a physical, printed and signed letter) to the headquarters of citi. l-o-l obviously we didn't do that, so we just shut it down and cashier check deposited the balance to the new owner's account at chase - and they happened to have a branch literally 2 blocks away. i just walked in and deposited the check into his account #. the teller seemed like she did this sort of thing on a regular basis.
> 99% of banking is boring and uneventful, it's just numbers on a screen
I wish my bankers would shut up about building a relationship, and just process these numbers. They are the car dealerships of holding money, such employees should be working on instagram not in the real economy. Human in the loop costs huge amounts of money and they only interfere.
Last time after a bank transfer that required log in, login confirmation by phone, bank transfer UI access by digit card security, bank transfer confirmation by SMS…
…she just called to check it was me. For $650.
I wish banks would just shut up and process our money.
$650 is a lot of money. Yes, definitely have those checks. I'd rather they call and check and everything is fine, than they not call, and things not be fine.
650 dollar bills is a lot of singles, it could feed a man for a month or more, or provide enough gas to drive across the US, it must be a lot of money, but it's quickly lost when it comes to basic needs like housing, healthcare and education.
For those saying it's not a lot of money, I shall gladly accept your donations.
$650 would allow me to buy myself a new office chair, or sort out a DIY project. Sure, I can save for these things, but if it's an inconsequential amount for you - it's an amount of consequence for me.
My favorite experience at Citi ironically was closing my checking account. I forgot why but anyway I went to the counter and they just said, 'ok'. I put in my debit card and pin to prove identity, then showed them my license as a second form of identity, then I signed on the electronic pad and received an envelope with my balance in it. Done. No, 'Why are you leaving?' and high pressure tactics - didn't even need to go to one of the desks in the back.
I'll bank again at Citi if I ever need to based solely on how easy it was to leave them.
Not that easy. My experience, I was a client for a long time (>10 years).
One day I was unable to log in. After logging successfully a message popped up demanding debit card activation. Every time I pressed 'cancel' I was logged out. That lasted for months. Effectively they locked me out of online access. By then I moved everything to another bank, so it wasn't a big problem. Then I visited their branch in person and requested all my accounts to be closed. I repeated 'All of them'. They did it, or pretended. I left being sure I'm done with Citi forever. But no, they kept debit card account open, without telling me. For charging purposes, as they don't provide any services, and they know it.
If locking out (they did build and activate this functionality in their system) was the bottom of banking. Silent not closing on request and demanding money for 'service' is a scum. My recommendation: Stay away from Citi.
When you start a startup, especially a venture-funded one, you really only want to be innovative in one area: your core offering. It doesn't make sense to spend an innovation token on your bank. So you go with something tried and true, that's done it a million times before with a million other startups. That was SVB.
Going with something else has potential downsides that you may not even be aware of (as the OP describes).
Seems like this conventional wisdom about innovation tokens was actually very poor in this particular area. Makes me wonder what other bad decisions might be lurking behind that best practice.
Yes, and the FDIC brokers those sales rapidly and with vigor.
If someone doesn’t want to buy a small regional, it’s because the FDIC didn’t care to make it happen. Which isn’t surprising if there is no systemic risk involved.
If you think there has been no damage to startups since Thursday... well, you're wrong. This episode just made us all poorer. There will be more regulation, there will be exponentially less goodwill (and our industry was already struggling on this front). Any remnant of an image of "tech" being smart or special somehow is totally shot.
So yeah, spending just a bit more time thinking about how to manage risk would have been a more wise approach.
I didn't know about this until reading things throughout this weekend (which is somewhat telling), but evidently there are a number of approaches that businesses use to avoid having essentially all of their money held as uninsured deposits in a single bank. Those approaches are the seatbelt that we seem to have largely chosen not to wear.
Sounds more like you are describing Chase bank. It’s tried and true and millions of businesses from small mom and pops to fortune 10 companies use them. They’ve seen it all and could even be an underwriter for your IPO. They can take you from idea to exit.
Brex is way better compared to SVB. SVB had these weird mountains of paperwork when I had to use them for my startup back in 2017. Brex onboarding was instantaneous for my small business.
I don’t know why the author cringes so much or feels like they made mistakes. You don’t owe Chase anything, it’s on them to earn your business and treat you like the major account you are. We had a similar situation and Chase treated us poorly, ultimately denying my wife and I a relatively small home mortgage, despite having millions in a business account with them. I will never forget how they made us feel. All I see in this story is more cluelessness from Chase, not any mistakes by the author.
They’ve been chasing our business ever since we moved to SVB post Series A. They’re going to get it since we wired our money out of SVB today (not my decision), but do they deserve it? Absolutely not.
How could have Chase earned their business better when the person on the account says everything is fine and gets off the phone as fast as possible? I'm pretty sure more phone calls would have soured things. If the author was saying that chase then turned them down for a loan or something, sure that would be comparable.
Instead of asking if everything was okay, and could they do something for them, Alex should have said something like:
"Hi, are you actually a startup? Because with a regular business account you're missing out on a lot of money. I would very much like to schedule a few minutes with your CFO and talk over what could be done."
Maybe he bites maybe he doesn't, but he's no longer so naïve.
Give better information by email, something that doesn't interrupt me and make me deal with it right now?
Other than that, it's not clear from this story why they chose Silicon Valley Bank - it sounds like this VP of Finance is the person who could explain what (if anything) they did better than Chase.
Spammy emails are somewhat annoying, but they're 10x better than spammy phone calls. Any company that wants me to do things over the phone will drop right to the bottom of my list, especially if they want to do it by them calling me rather than me calling them.
Maybe offer assistance or discounts or anything else?
The usual emails of credit cards, better interest on savings (money sat in the account for nothing) or others if it didn't happen?
At least from the recount there was no mention of e.g. we realised you're a big customer and we have some special packages for you. Services like AWS would immediate assign an account manager, want to know you more and offer training, assistance and all sorts of things and not just when you make a transfer.
You don't plop 35MM into a single bank account and sit on it. The cringe isn't about feeling bad for Chase. It's about watching a 22 year old learn how to manage incredible amounts of cash.
In the post covid world, I find many young engineers fall into the trap of squeezing more yield out of their meagre savings early in their career through financial engineering rather than focusing on their personal development and growing in their actual professional lives.
All the amateur investors who made big returns in the 2020-22 period and thought they figured it out will now have a hard time making sense of the markets in the new regime of high interest rates.
>All the amateur investors who made big returns in the 2020-22 period and thought they figured it out
Chasing big returns generally leads to massive losses so I cant fault people for sitting in cash but I dont recommend taking inflation lightly. The least one should do is beat that hurdle rate and conserve value.
Definitely! They forgot that there are two type of revenues for a company, and that it can be applied for personal finance as well :
Operational revenues : the real job, the thing that is making money. The yield on the operational one is
Financial revenues : cash sitting around non-invested yet into operations, waiting for the next project to invest in.
The yield on the operational revenues is much higher and the investment in it could be transposed as for example : spending for some certifications, go to online or physical classes, etc
But it’s not bad to diversify risk early on and have a plan for that. High yield savings accounts and treasury notes are standard practice. We’re not talking about founders taking moonshots in the market. We’re talking about $35MM in a bank account that doesn't even match inflation.
To put that into perspective. That's $1MM a year (at %3 inflation) going into the toilet just because you don't want to do some minimal cash management. You could hire a CFO for that price and it would pay for itself 3 times over. I mean I get the vibe and totally agree that you don't want to overthink things. But I also think it's easy to underestimate the value you're leaving on the table and the risk you're exposing yourself to by not giving it any thought.
With the resulting 15,714% return over 11 years, the guy could be forgiven for getting 0% on cash on the $35m at the time. Theres a real opportunity cost if you were to spend your time optimizing your return on $35m of cash via financial instruments instead of running your startup.
The cringe isn't that he failed to maximize yield, it's that he failed to protect that $35m from tail risks, by parking the lion's share of it in T-bills.
"Maximizing yield" would mean earning a few % annually in interest. "Minimizing insolvency risk" means paying a few % to ensure it doesn't go to (effectively) zero in an SVB-like situation, and requires literally a day or two of work.
However, it's difficult to fault Mitchell for knowing these things. It sounds like the VP of Finance was brought in at the right time (Series B), and did the right things.
With what Mitchell knows now, and especially given the industry's recent experience at SVB, I'd guess that he would advise any young founders he works with to cover this base at their own companies even earlier than he did.
> Being focused on his startup instead of maximizing the yield of these $35M allowed him to turn it into a $5.5Bn company.
In this case. I'd bet there are more than a few startups who would have survived if they'd spent a few hours on the phone with their bank to help manage funding cash more efficiently.
Accountants should be the ones running the companies. Mine is run by them, and it's great. There are some incredible perks, like always knowing the company is financially in a very good place and taking appropriate risks, a culture of transparency and collaboration ... I could go on.
First time I've heard a positive review about a company being run by the bean counters, who are generally more known for being brought in and cutting tiny luxuries which don't generate money or make financial sense, like free sodas in the break room.
They're accountants, but I wouldn't call them "bean counters". They have a vision for the office of the CFO, and it's that the accounting team rises above mere bean counting into financial leadership.
The company was also a VC-backed startup and is on the road to IPO, so it's run like an investment, not a cost center -- and hiring and keeping great employees is a priority. The perks and benefits are really great. It has won awards for the last ~5 years for being the "best company to work for in $region".
“Being brought in” could be the crucial difference, yeah? When a company starts with beans on staff from the start, maybe there’s more of a sense of security
You might be confusing accounting with financial management. Accounting is outsourced by nearly 100% of startups.
Financial management for startups with respect to "how big you are" is almost always "not big enough" until you have tens of millions. Both seed and series a are usually to be spent within a couple of years and hiring a full time financial manager to represent 5%-10% of payroll is just not worth it, he won't recoup his salary even by excellent trickery.
I'm happy to believe you on that point, but can you explain WHY? It appears to me that accounting is the exact type of generalized skill with well-established standards that makes sense to outsource.
Thats the point, good accounting ISNT a generalized skill at all.
Once you get past "how much is in the checking account" and into the why attached to quantity then you get insight. What is the cost and value of a client? Are there fixed costs (acquisition, setup) and variable (AWS/Usage).
The ebb and flow of money and someone keeping an eye on it matter. Where and how you bank matters (lesson some are just learning). Hell just pricing a product internationally is a task that genuinely requires an accountant.
Go hang with accountants, learn what they do and see the insight they provide.
Agreed with this. The story written from Alex's perspective would probably be: "how I blew a once in a lifetime shot to be the best business banker in America but I took the opportunity for granted."
Yeah, it seems super weird this Alex guy didn't just send them some kind of brochure or information of "These are all the services Chase offers to businesses, give us a call".
Also, the implication that the Alex guy was fired or something because a customer decided to switch banks seems to only indicate that Chase has a toxic internal culture. Customers switching banks is not unheard of...
What more was Chase expected to do here? What would treating Hashicorp as a major account have entailed? A phone call to find out what else was needed?
In our experience there was so much they could have done. I just compare it to our experience with SVB which got us no-personal guarantee credit cards, availability of venture debt, access to mortgages (something I would have done if a local credit union hadn’t stepped up). Chase never did any of those things with us. They need to step it way up if they want to win startup business long term and not just in the wake of a crisis.
Many of the West Coast "Chase" branches and operations are just rebranded WaMu ones from when they collapsed during the GFC. Probably the new JPM Chase won't lose your money but the predecessor came pretty close.
Yup, you can check the routing numbers to find this out. I haven’t dealt with east coast Chase but I’d be willing to bet it’s a completely different experience.
If you have enough assets, Chase will absolutely lend against that collateral.
“Enough” is likely the key word. But if you have business or personal accounts with over a couple million (and certainly $10+ million), I would be shocked if someone higher up than a clerk hadn’t personally reached out to you, tried to take you out to coffee, and let you know the perks applicable to your personal situation they can provide you that you can’t find on a website.
Sure, they likely weren’t as enticing as SVB’s perks nor as willing to lend to an account that had $0 yesterday and millions the next, but they absolutely will offer personal loans/mortgages against stock compensation on the guarantee you keep your account with them above a certain threshold, etc.
Similar to the reason mortgage APR will differ among seemingly similar homebuyers at the same point in time (and even then, only after you actually send over your financial documentation can you see your rate), my guess would be one can't exist because everything is based upon not just the financial situation of the bankee but also (as we've seen with SVB) the banker.
I would expect them to say hey, now that you've got so much more capital in your account I'd like to set up a short meeting to learn more about your company. Then they meet with you, learn a bit about your business trajectory (for their own planning) and pitch some significantly increased benefits to keep you around.
You don't have to accept, but they should at least actively try to bring you in if your account is a bug or important one.
There are plenty of ways to get you in the conversational door like offering a better rate or to help protect the account.
Eventually someone from hashicorp "...notices we have ~$35M sitting in cash in a Chase bank account. This is obviously not a smart thing to do, so he suggests some financial plans for how to better safeguard and utilize this mountain of cash". The bank could have been the party to preemptively explain this to the author, and if they did they might have been able to be a part of the solution (or at least try to negotiate for it) instead of losing the entire account.
It sounds like the bank manager was being too delicate, asking the author if they had any banking needs when he didn't really think he had any. They should have been more blunt and said look dude you have a ton of money in here, you're probably not used to managing this amount of money, we need to take just a bit of time to discuss it and we'll make it easy and worth your while.
One of my landlords was a guy like "Alex", and had a similar fate.
I can't say I shed a single tear for him or Alex. What services did Alex render in this story to justify being a "rising star"? That one account likely earned him significant compensation -- multiples of what I made doing 80 hour weeks in my 20s at 20k/yr -- for a significant chunk of his earning career. For what? A few phone calls to someone who didn't want to be contacted.
The rent seeking component of the American economy needs to be competed out of existence. Their margin is everyone else's broken back.
For a more traditional small businesses, Alex would be helpful in opening a line of credit, setting up payroll through the bank’s system, suggesting a money market account or CD rotation to park cash, etc — all with a personal familiarity with you and your business, while genuinely invested in helping it financially grow (because that’s good for the bank).
Having a good banker that you trust is very helpful when you’re running a small/local business or bootstrapping.
And yes, just like an B2B SaaS or freemium game that gets lucky and lands a low-maintenance whale, a banker can sometimes earn a lot for doing very little. But that occasional exception doesn’t mean that they’re useless and “need to be competed out of business”
A more traditional small business would have some assets other than whiteboard scribbles and slide decks, and life expectancy of more than a couple of years.
> What services did Alex render in this story to justify being a "rising star"
He didn't.
What is perhaps a touch of poetry is the author learning (the hardway) about the lessons with managing large amounts of cash, while simultaneously learning the hardway about being a customer account manager.
As another commenter wrote, Alex blew his opportunity.
> Big corps (like HashiCorp) make their margins on SWE and FOSS' backs - do you owe them the same ire as landlords?
There is a false equivalency made here, in that it assumes that the debate regarding labor & the debate regarding capital are interchangeable.
Landlords (& possibly account managers like "Alex") derive their compensation from the maintenance & management of the capital's safety & utility: The quality of said capital (whether cash or real estate) should remain constant if they did their job. The debate enters in when the capital owners/managers put in little documented effort & receive large compensations in response.
For Software Corps, their compensations are derived from difference between the value created from the creative, technical, & outreach labor put in from their SWEs, designers, marketers, etc., and the cost of compensating that labor + maintaining the necessary equipment to make the labor usable. For this, the debate enters in on how much they should be compensated for the labor put in.
HashiCorp is one of the most Open Source friendly companies out there. Most of their stack is open sourced, open, and very fairly licensed. I'd say HashiCorp is an exemplar.
In other SVB threads commenters are like, if you have this much money it should go into a CD ladder or whatever instead of sitting in a big pile where only $250k of it is actually insured by the FDIC.
Maybe that's one of the things Alex wanted to sell him.
I'll be honest, all these asides feel like there is some kind of explanation or big reveal that never comes. I can understand a bank identifying a large-sum account and wanting to look after them, being annoyed by that account moving banks as well as a local branch having to take precautions on such large withdrawals. But otherwise, I feel like I'm missing something here that isn't spelled out.
The author is used to thinking of their bank account as an anonymous number, with operations handled impassively by whoever happens to be staffing the bank's reception desk that day. They probably never considered 35 million dollars to be an amount worth fussing over ("this is not a lot of money to a big bank, they'll barely notice").
The bank thinks of multi-million dollar business accounts as a deeply personal relationship between the CEO and account manager, where the AM takes the CEO to fancy dinners and golf outings and remembers the names of the CEO's children. HashiCorp's account might have been the largest that had ever been opened at that particular branch.
This article is an amusing(?) story about those two worldviews making contact.
I admit I was laughing at the part where he transferred out the $35mil and Alex called him.
Honestly I'm sure a lot of people on HN have experienced the "hey I just wanted to see how you were doing" call from their bank. Once you have >$100k in your chase accounts they'll start doing that.
But why would anyone have that much money in their Chase accounts? I keep a nominal amount of money in my chase account and send the bulk of my money to fidelity to throw into whatever investment vehicle I like. Sadly, I think you need to have $1mil at fidelity to get the same red carpet treatment chase will give you for $100k.
Having that kind of cash with Fidelity gives you a lot of perks, but you still need to keep an eye on them. My Fidelity guy is now a VP, but because of my balances he still handles my accounts personally. I've been with them for a while and my conclusion is that they are no better (and often worse) than I am at financial planning and wealth building. The economy is always changing, and the big sudden changes are the ones that usually catch everyone (including the experts) by surprise. What worked well five years ago doesn't work anymore. You'll never get the kind of attention and analysis from Fidelity (or any firm) that you can get from yourself if you are willing to put in the effort.
> Once you have >$100k in your chase accounts they'll start doing that.
Is there a good reason for this other than if you're about to buy a house or something? Most of my net worth is in investments; very little is in checking or savings, because it doesn't seem like there is any benefit to that.
Nope. And that's part of why they start calling you - to sign you up for CDs, money market accounts, etc. (I'm not sure if they get a commission for selling you into a locked investment, but I imagine they do). They probably also are trying to get you on a good credit card, get a mortgage with them, be the first place you come when you want to buy a car, etc.
I guess I'll note, I've never had that much in my personal account but I have a friend who did for a while (and a family member who also did). Personally, I canceled my chase account because a teller at the local branch was being a condescending dick to me. I assume because I didn't have that much money in my account lmao.
> Is there a good reason for this other than if you're about to buy a house or something?
Liquidity. FDIC insurance upto $250k. Of course, you don't want to put a big chunk of your money into a bank like this, but $100k is not a "big chunk of your money" to a lot of people, in relative terms.
I'm assuming your sentiment applies to HYSAs as well, which is the better place for this kind of thing.
Checking is the backing buffer for a queue of pending transactions. If you have one or two highly-compensated people in your family, and somewhat randomly-distributed large expenses (paying cash for a car, renovating a house, credit card bills after a vacation, etc), then $100k does not seem like an unusually large buffer size.
> >$100k in your chase accounts they'll start doing that.
Heh, not Wells Fargo.
After 20 years being a customer and carrying very large deposits they will charge you for a cahiers check at the window. After you politely ask for it to be waived (having worked for the bank knowing they can waive it for you), being declined by the manager on duty who handled the escalation, and responding "I need the check but if you charge me for this I will close my account" to the question "Do you still want the check for the fee?"; then they will start calling you after the 10k daily transfers out start.
Hmm yea that doesn't surprise me. I really wasn't sure what the magic number was lol.
Says a lot about the level of service my credit union gives lol. I've had more than that in my account before and they never gave me special treatment. XD
The only thing I was amused about was the fact that a 22 year old without any sort of work experience got 1 Million dollars just like that (and much more later on).
I am more surprised about the founder lack of interest for bank and finance. It’s fully in his duty to know where his investor money is. And he seems to be careless about it.
It makes sense considering he's gone from founder / CEO -> founder / CTO -> individual contributor i.e. probably never focused on these things and just wanted to build the product as an engineer.
I’ve had plenty of debates about SVB where a key argument is “the bank’s depositors should have known better!”
This kid is now a billionaire(?). I think this is a good example of the financial acumen of a typical SVB customer.
I don’t say this to promote or defend a bail out. To me it says that if we are regulating the system to protect deposits, we should come up with rules that actually work. For better or for worse, a bank is a bank is a bank is how most people see it.
> I think this is a good example of the financial acumen of a typical SVB customer.
While I totally wouldn't expect startup founders to behave hardly any different than Hashimoto, I would expect VCs to have done a much better job helping their startups do cash management. I mean, isn't that a pitch so many VCs give, in that it's not just "we give you money", but we also help connect you with experts for different parts of the business?
Even for pure self interest, if VCs are going to write a "kid" a check for $10 million, wouldn't they want to ensure it was properly safeguarded?
Regardless of the above, I 100% agree with your "we should come up with rules that actually work" statement.
>
I don’t say this to promote or defend a bail out. To me it says that if we are regulating the system to protect deposits, we should come up with rules that actually work.
For the most part, they do. The government made it very clear last weekend that deposits are sacred, but the executives and the shareholders will be taken out back and shot if they are caught doing risky things. (Signature bank was seized, and it wasn't even insolvent.)
People are angry because bank executives and shareholders ate all the losses, and the depositors were rescued at no net cost to the taxpayer?
What would make those people happy, exactly, and why should anyone care about their happiness? I rather like living in a world where from the perspective of the end user, my money doesn't disappear because some moron five steps removed from me decided to YOLO the bank on 10-year treasuries.
I also, for similar reasons, like living in a world where I don't need to personally test all my produce for e.coli contamination, or my food coloring for cadmium.
Your metaphor isn’t very good but you’d be upset if someone was found to be circumventing food safety rules and poisoning food, and the government changed the rules to avoid them going out of business.
The government put them out of business for poisoning my food. That's exactly what happened to SVB and Signature. They are gone. Dead. Wiped out. Seized. All the people responsible for mismanaging those banks are now broke. [1][2]
And made me, the depositors, the people impacted by that bad behaviour whole.
Again, what exactly is the problem, here? Which bad outcomes have the changes to the rules produced?
[1] Well, the C-suite isn't, but they are all going to be sued by the investors that lost money due to their bad management.
[2] Once the FDIC finishes picking through their carcass, if there's any value left (Possible for Silvergate), those groups might get pennies on the dollar.
Time will tell. I suspect banks will be more reckless because of this. There’s less incentive to protect deposits if they are all guaranteed, and more incentive to make risky bets.
But it’s also a principled point. If you believe that rules don’t matter as long as you like the outcome, that’s a bad way to run a society.
> I suspect banks will be more reckless because of this.
Could you outline under what mechanism other banks will look at what happened to Signature and SVB, and conclude that they should engage in behavior that's likely to get them seized, and their equity zeroed out?
> If you believe that rules don’t matter as long as you like the outcome, that’s a bad way to run a society.
There was no rule that capped recoupable deposits at $250,000. There was simply a rule that guaranteed them up to $250,000.
Also, if your rules result in puppies being regularly pushed into the puppy-shredder, and depositors routinely losing their money through no fault of their own, that's also a bad way to run a society.
You know what's a good way to run a society? Retail banks being a boring, dumb, stable, reliable service.
Consumer protection is part of the FDIC mission; not holding some imaginary, sacred 250k line. The 250k dollar insurance is a means to an end and not a traditional insurance business.
People are angry because (they are being convinced) somebody is getting a hand-out that isn't them and they haven't personally deemed worthy. Just like people get angry over the idea of free healthcare going to immigrants and college loan forgiveness going to.. Whoever.
That's not even what's happening because the FDIC, now in control of SVBs assets, are going to use those assets to balance the books. They have the liquidity to guarantee depositors funds while they wait for the loans and bonds to reach maturity.
We actually don’t know if the rules changed. The rules are that the FDIC covers up to 250k in losses for each account. The SVB that the FDIC now controls still has valuable assets which likely cover the accounts as designed. Or at least get close enough that the the difference is marginal.
Historically, the FDIC was intended to protect consumer banking. $250k was enough coverage for most consumers, and consumers with more than that (back then) probably had an accountant savvy enough to know better than to keep all the eggs in one basket. The same goes for businesses (including startups). The SVB crash was a wake-up call for businesses that were careless with their finances, and they were lucky to get a (unprecedented) bail-out from an administration with an interest in their success.
It's possible, just like it's possible to do a detailed food safety inspection on every single thing you bring home from the grocery, but why would anyone want to live in a buyer-beware world where that is expected?
American banking stories always read as an '90 comedy to me, as a European.
Furthermore, once I visited Philadelphia, and I saw several people standing in queue. I asked what restaurant or place that was. My driver said it's where people wait in line to pay their rent. He did not laugh. That was not a joke. People do that for real in the USA.
I think it can vary greatly in Europe, though. I know my friend (in the 2010s) had a bit of a culture shock trying to deal with how old-fashioned banking was in Italy, having previously only lived in the UK.
And it goes both ways, there are things here that Americans would think are a bit backwards. Like if I'm ordering something online here in Czech Republic it's really common to allow payment via direct bank transfer - i.e. they'll give you a bank account number and a variabilní číslo ("variable number" - a way they can identify the payment on their end), you make the transfer using these values and they'll send out the order when they confirm they received the payment. Nowadays a QR code will often be generated for this and you'll just scan it in your banking app, but it could seem a little backwards if you're used to paying via debit/credit card.
In Venezuela, people pay their rent in the bank branch in cash, often from a bag hanging around the tenant's neck and spacious enough to accommodate the substantial inflation. Then a photo and fingerprints are taken from the depositor (every month!).
The capital Caracas has a tunnel, in which gangs often stop cars and shoot through the window (cost of bullet = $0.10) in order to collect any change the driver or other passengers may hold - if someone was on their way to pay the monthly rent at the bank it would be their lucky day, but if the driver had just $20 in their wallet, it's still a profit of $19.90 minus the cost of the assassin's time.
Good there are electronic standing orders in most countries.
However, most of that is probably explained by the cash crowd trying to avoid taxes. Of course, if income taxes were minimal, there would be less effort to avoid it.
Also, cash doesn't show up when doing welfare checks against your bank accounts. To receive food stamps, you can't have more than $2000 in your bank accounts combined at any point.
TBH, I don't really think that the author of this post screwed up. There's a lot of self-flagellation, but, ultimately, Chase offered accounts. The company used the services written on the tin. It's far from obvious that one needs to show up in person to close bank accounts. (I've certainly closed bank accounts without showing up in person, or, hah, at least I think I have.) It's far from obvious that a bank wouldn't be able to handle large amounts of money without confusedly celebrating and then condemning the poor fool who types the information into the computer. And ultimately, it all got fixed, and the only serious hitch to fixing it was the fact that for some weird-ass reason the bank had some rule that it couldn't issue a cashiers check unless there was a wad of cash that size in a particular branch, which is completely nutso given that 99.999999% of bank money is just bits anyway.
Yeah the "poor fool who types the information into the computer", or "Alex" in this case, is really the most enlightening thing in the story for me. It's amazing that this person who has exactly zero impact on account sizes... is rewarded for and takes credit for account sizes.
I’ve always been shocked by how non-fungible branches of huge national banks are. “We can’t give you a megabuck of cash because we don’t keep that much in the vault” would make sense, but “we can’t write a cashiers check for a megabuck because something about this branch” is bonkers. I keep a BofA account and every once in a while it somehow matters what branch I opened it in 15 years ago.
On the very rare occasions when I get a paper cheque, I still have to send it (thankfully, by post) to the branch where I opened the account nearly 50 years ago. This is at a reasonably large national bank, now owned by a huge international bank. It's pretty weird. Also I'm fairly sure they just scan it in to their computer, which I could do myself if the bank offered a functional app.
The postscript to this is the bank has been closing branches left and right, so I imagine one day they'll close "mine" and then I don't know what I'll do with cheques. Hopefully they'll have finally died out by then.
The last week has made me really question why VC firms don't provide cash management crash courses to founders, or something of the like (cash management consultants or something). It seems like a huge flight risk to write $10MM and $20MM checks and just hand them to a founder with no financial staff whatsoever who only cares about finding PMF and who couldn't care less about cash management. It's great that Mercury is doing all this stuff for founders, just seems like it should be table stakes for VCs to require some sort of cash plan to be approved before handing over the check. But what do I know maybe 10MM is peanuts.
VCs are psychopaths. They don't care if the world burns down as long as 1 out of 50 investments turns into a huge valuation. Poor cash management? They wouldn't care if he was feeding stray cats to an ML algorithm and burning $1000 bills to power a crypto miner.
I think all the replies here about people describing all their personal interactions with their banker is hiliarious. I'm in my 40s, started "banking" well before internet banking was a thing, and I still had no idea why the author was cringing at his naivety. Until the people here with actual money spelled it out for me. My banker never knew me from Adam, and my typical withdrawal was to buy ramen... Oh how the rest of you live!
I get those voicemails from "my personal banker" at a branch of my bank I've never actually walked into a few times a year, "just checking in to see if we're meeting all your needs" or something like that. I hadn't noticed those calls are correlated with me moving around large amounts of money, e.g. when I pool money into a checking account to buy a house or whatnot. I suspected some department is responsible for watching that kind of thing for fraud, but never thought it'd be some random banker at a specific branch.
In general, whenever some business I have a vague professional relationship starts calling me on the phone because clearly some CRM system has prompted them into "just checking in!", it only bothers me and becomes a source of annoyance. I don't like getting calls from people who want to sell me new things or who work on commission.
The likelihood of me continuing as a happy customer is inversely proportional to the number of unsolicited calls I get.
Mostly all this means is these days I give out the main number to my pbx IVR menu and never my direct cellphone number.
I dunno, I kind of like that it’s the same person all the time. If they’re happy with me saying ‘everything is fine’ until everything is not fine and I call them back, that works for me.
I get those calls from my local (Canadian) branch, and I've noticed a correlation with having an unusually large balance. (In fact, I'm expecting such a call in the next few days since I have a new car worth of cash in my account.) It's usually almost immediately apparent that they want to "help" me invest, aka. buy their high fee mutual funds.
Alas, I don't think Tarsnap has ever had such calls from my bank -- I guess it doesn't keep enough cash for them to consider it an exceptional small business account -- but I have had such calls from PayPal... interestingly, not correlated with anything I've noticed, so maybe PayPal is just calling everyone in Tarsnap's volume range on a schedule. Similarly, I get regular "check in" emails from AWS... the most recent one offering a discount ticket to re:invent.
I don't think I've ever had any such calls from Stripe. Now I'm starting to feel unappreciated!
100%. CIBC calls me about that too and tries to upsell. Just tell them you plan to leave the country or something and you're not interested, then they stop chasing.
I get these exact phone calls from Wells Fargo because they bought my mortgage, I don't have any other accounts with them. Since they bought my mortgage I've never even been in a WF branch. They call from the closest one, which isn't very close.
They are the only bank that's ever called me like this. I have had accounts with many different banks.
> I suspected some department is responsible for watching that kind of thing for fraud, but never thought it'd be some random banker at a specific branch.
Why wouldn't the fraud department ask the "account manager" what is going on?
My Dad was in banking in the UK and told stories about inter-bank transfers in London in the 1930s that were effected by two low level employees physically exchanging documents. He said he was always very careful to get a firm grip on the receivable briefcase before releasing his grip on the deliverables.
This can all be understood by not thinking of your bank as a bank. Every bank employee, except a teller, is a salesperson trying to make a living by upsells. They are paid commission. Since your bank really isn't a bank, the one thing they don't have is cash money. You might have problems withdrawing $10,000 at one time.
With so much dramatic build up I was fully expecting him to lose a bunch of money, but what followed was... nothing. Like, nothing happened. "My final check was delayed by a few days and I got weird looks from bank employees", that's it.
How does that even happen? Don't they have salaries to pay or marketing campaigns to run, pay rent? How can he sit on a pile of money and still grow the business?
I have no idea why Hashicorp didn't use it. The point is just that if you made a contract for something and they hold up their end, you've gotta hold up your end, even if you ended up not using what they provided.
I'm sure there are cases where doing a specific thing (e.g. buying another company, or paying off particular debts) with the money is part of the deal. And sometimes an investor will demand a board seat which gives them a way to influence other decisions. But I'd be amazed if a VC wanted a "spend the money on something" provision - if you really can't think of anything to use the money for, letting it sit is better than burning it. You're always obliged to use your best business judgement on behalf of your shareholders, which would seem to cover making use of the money if you have a good use for it, and not if you don't.
I remember when I bought my first house someone told me to make an appointment to get the cashiers check for the closing day.
I assume it was semi related as you want to be sure they are ready for you / have the money on hand for you to issue the check.
Not that they wouldn’t have the money but depending on some else(s) showing up looking to empty the local branch inadvertently… you want to be sure they got you covered.
It's not the bank, it's the banker. Like seriously.
When we were starting up, we were just a bunch of bright-eyed 18-year-olds, with nothing to our name, except $3000. We didn't know the basic shit about opening a business account and shopping around, so we went to the name-brand small private bank we could find that was "sexy", cold called them and explained our situation. We were all broke, still in college, no real revenue so to speak of, and the person handling the call literally did not know where to guide us (or she misunderstood us?), so she sent us off to a relationship manager, to whom we relayed our story. He told us to go look elsewhere.
Actually, yeah, he told us to go look elsewhere because that bank was not suited to handling corporate accounts, but mostly private wealth management. And their minimum deposit was $200,000 for the basic accounts, with a $1 million being the usual expected deposit. Instead, he himself referred us to another bank, which gladly took us on, because of his referral. We thanked him so much, created our account, whatever.
Fast forward to 3 years later, we sold the company and were flush with cash, so obviously y'all know to whom we went to handle our accounts. By then he was in a much larger bank. When he left that one for Credit Suisse, we all followed him. Over these years, he might have received a collective amount of more than $200 million in banking business from our relationship (not from our startup alone, other investments too).
I wonder if this would have gone differently if the author had originally opened business account with the local teacher's credit union. That could have really been interesting to see how the account manager handled his account. And @jmillikin's comment about the author being used to treating banking as an anonymous store for cash and executor of transactions vs how they have traditionally worked is spot on.
The oddest thing to me is being given round after round of cash, and not needing it. Sure it could be 'invested' in an index or something. But wasn't it meant to be 'invested' in the actual startup?
I'm in the UK, why on earth does it matter about the branch? In the UK it's about the bank not the branch. The branches left generally are pretty small now doing the most basics of tasks.
Banking in the US had quite a few surprises for me. Often masked as 'for security' when it's anything but. A few examples spring to mind.
1) Chip and pin took the US forever to adopt. I've heard arguments that this is because chip and pin is 'insecure'. Insecure compared to a signature or magnetic stripe? Really?
2) SSL certificates. A lot of the retail banks use the cheapest grade SSL certificates. No extended validation. So you don't get that reassuring green padlock. No idea why. Something about compliance I read once. Bizarre.
3) ACH payments take three days to wire. Again, I've heard the argument for this is that it helps security as it gives you a chance to cancel the payment before it finally completes. More plausibly though, I think it helps the banks generate fees. Granted, it took legislative intervention in the EU to get this right, but clearly it's a net win for the economy.
A lot of people buy the arguments, too. Banking in the UK/EU is like living in the future when compared to the US.
EDIT: Oh, and I forgot about cheques (checks). The US still loves a check. The banking equivalent of the Penny Farthing.
> So you don't get that reassuring green padlock. No idea why. Something about compliance I read once. Bizarre.
All major browsers have removed the green padlock for EV certificates. It did not improve user security behaviour. There are some arguments that it had a detrimental effect.
You can still distinguish certificate types by clicking on the small padlock icon in the URL bar. But of course no one does that.
Consequently there is no current reason to pay (in cost and time) for an EV certificate.
The author must have never seen a rerun of Beverly Hill Billies growing up. The bank President was constantly courting the attention of Jed Clampett and his family!
And I'm curious whatever came out of the fraud investigation at Chase. I mean, there was some fraudster who had control of a well known startup's bank account (granted, the older one) and moving six-figure amounts out of it regularly, what in the world happened?
Four-figure ("thousands of dollars out every few weeks"), presumably specifically to avoid tripping any automated checks on moving over $10k.
But yeah, it's still kind of mind-boggling that they could do this for apparently years without anyone noticing. And not just on Chase's side: how do you not notice that the money customers claim to be paying you is not actually landing in your main bank account?
I wanna know how he managed to initiate a wire for $35MM online (and approximately 100% of account balance), presumably to a brand new recipient, and only got a single phone call and the wire request wasn't rejected. Maybe things have changed, but my experience now is that I'd have to go into a branch to do that wire, and I'd probably get the normal verification call plus another from the account manager.
I opened a new account and ACHed $25k into it which triggered all sorts of "fraud alerts" and put my money in limbo for days. Ended up having to get on a three way conference call for the transfer to go through.
Typically when buying a house the down payment is either a wire or cashiers check. I did a cashiers check, just drove right from the bank to the title and escrow company.
I don't think that's relevant to the post though. It's essentially saying that a big bank has bankers that want to check on accounts once they get large enough and he didn't understand that
What surprised me most about the story is that despite a very unusual pattern of transactions for a business banking account at a local branch, the OP only received occasional calls from the local branch banker. I would have expected at least one call from the bank's compliance department inquiring about the source of the funds, and requesting more information about the nature of the OP's business. Bank's are legally required to know their customers and to report potentially illegal activity. This account clearly did not go unnoticed.
I have received such a call from Chase only once in my 35 adult years, and it was triggered by a deposit much smaller than 35M.
They wouldn't have looked at it as a one-off $35M deposit though, but as one of many increasingly large deposits into a tech company that could all be traced back to a VC firm - all of which could be verified by information the bank has available without needing to query the customer, not least a series of effervescent PR pieces by said VC funds about their new investment
The VP of finance is the same one that took two years + to realize (through an internal audit) that some 1,100,000 worth of invoice payments were paid on that account instead of the main one.
This makes little sense, bordering to impossible, pairing invoices and payments received is weekly or at most monthly routine.
Alex correctly assessed that he was giving his customer everything they wanted, and left it at that. It doesn’t sound like he was pushy. He didn’t call more than once in a while after big deposits. Mitchel just needed a place to hold cash. Seems like they both got everything they needed out of the relationship.
If anybody here was deluded, maybe it was Alex’s leadership who mistakenly thought there was a chance to sell huge financial products to this “whale.” Alex understood otherwise, and probably spent most of his time managing that impedance mismatch with his boss.
What a crazy story, love it. I'm a HashiCorp shareholder and was quite concerned about their SVB exposure as I was pretty sure they banked with them. Thankfully it worked out, at least thus far.
This really highlights the difference between what banks think they are, and what most of their customers think they are.
Also, this makes me think how in a world where stablecoins are regulated with clear rules of what their issuers can and can’t do, you’d be better off having your funds in something like USDC instead of a bank account. It’s basically the same thing as a bank account but with full instead of fractional reserve, and the ability to hold and transfer the ‘I Owe U’ units without involving ‘the bank’ itself.
How the fck is this possible in US?
Try similar things in EU and you would have police commando waiting for you in wrecked offices.
Because this would be viewed as major fraudulent activity. No reporting, no nothing.
Also why some random guy in random small branch is responsible for money on the account? Here, nobody cares. You close the account, ok no problem see ya.
> the amount the cashier's check is made out for has to be available at that local branch (or, whichever branch issues it). And, well, local branches I guess don't usually have $1M cash lying around. Or, if they do, its not enough to cover other business activities for the day so they're not willing to part with it.
Of course your banker calls - in fact, what OP should've done is email the banker beforehand, "headsup: big day! We just closed our series A financing with <fund>. I've got $x coming in by wire." and they respond "congrats, I'll be on the lookout for it." You don't want to surprise your TradFi bank or banker, and you do want to "build a relationship" with them.
The WHOLE POINT and the key feature of TradFi banking is the personal relationship. No, you don't need to invite your banker to your kid's graduation. But yes, spend 15 minutes playing get-to-know-you in an RL branch, talk a little about the business (source of funds, what you do, types of customers, etc), bring them treats you know they like (important: must be tiny$) and then when Stuff Happens or You Need Something, the banker is suddenly your ally in dealing with the banking system. Remember, when you deposit $1M+ you're now part of "the club" and the bank and banking system is there to help you.
I've had a private bankers at multiple institutions for decades and have numerous stories where they untangled messes, worked around the pandemic, helped me "skip the line" and more. Friends tell me about wasting hours on banking issues but I've rarely experienced that, thanks to my private bankers. When things do get messed up, my banker explains what's going on, e.g. "yeah it's stupid and affecting other customers too - bank policy is ridiculous this year, but I'm sure they'll fix it because everybody's complaining and threatening to leave." And sure enough, a few months later it's fixed. Like Google, you report serious bugs and then wait, and if the fix is feasible and affecting other people, they eventually get fixed.
There are downsides: bankers are human and don't work 24x7x365 so you need to also make friends with the branch manager or an assistant, and of course TradFi isn't crypto and you can't transact at certain times/days, e.g. wire cutoff deadlines. Also, bankers retire, get promoted, move branches, etc so you need to plan to rebuild the relationship every 5-10 years. Finally, bankers vary in quality and "fit" - if you don't get someone you like, ask around. I once had a kickass banker but she switched branches and her replacement was too junior to help me, so I begged a little and got my account reassigned to her & her branch and life is good again.
tl;dr: TradFi is your friend if you play by its rules and work the system.
DM me for intro to a kickass Chase banker - direct referral in NYC, otherwise she'll refer you (so far, her referrals have been solid, but YMMV by location)
I mean, it sounds like the article is describing this, right? My takeaway was that the author didn't effectively handle their interaction with the banking system. The consequences seemed to be minimal in this case, but the takeaway for me was that interacting with the system as expected probably offers these benefits you describe.
I expect a 22 year old to hire someone who knows this, and I expect the board of directors to strongly recommend that a 22 year old to hire someone who knows this.
I will never trust a bank with any amount over $50k.
It's weird. I remember 5 years ago, when I got involved in blockchain space, I was seeing people holding $20k in crypto and I was thinking that they're crazy. Now I'm holding over $20k in crypto myself and it feels like the safest asset on earth.
I don't even trust company shares. I would never trust any human being with more than a new car's worth of value. I worked too hard for it and humans are not trustworthy enough.
In what crypto? Holding in USDC means trusting your money with Circle, and holding BTC means trusting whatever exchange that you're going to deposit your money into.
Holding BTC doesn’t require trust in a single exchange, only trust that it continues to hold some market value.
If you have $20K of non-blacklisted BTC you will probably be able to find a buyer somewhere in the world, though the exchange rate might not be as efficient as a CEX like Coinbase.
GP’s logic seems poor though. In US or EU, probably safer to hold up to the insurance limit in local banks. Beyond that, or for higher risk assets or in countries with poor banking infra, crypto becomes a viable option.
I hold some tokens from a project I worked on for 2 years (I hold everything on-chain) and also from my own project which I built (and designed the signature algorithm from scratch) so it's hard to get more security than that.
Interesting story, but I've got to complain about the inset text boxes:
> Someone out there is probably mentally screaming at me "you fool!" at this point.
These are each clearly building up to "some explanation" of what the author should have done instead, indicating precisely what his foolish actions were and why. Perhaps we're just supposed to know that, but this is never directly explained in the story and I found it a little upsetting.
> Perhaps we're just supposed to know that, but this is never
> directly explained in the story and I found it a little upsetting.
This might be an age / generational thing, but all of the issues described in the article are immediately obvious to people who grew up before internet banking.
The default for business accounts in "traditional" banks is that they're handled by a specific named account manager, who is given the credit (or blame) for that account's growth over the years. So walking into some remote branch and opening an account will tie that account directly to the political success of whoever was sitting across the desk from you when you signed the paperwork.
It's a failure mode that doesn't need an explanation to people who are the expected audience of the article. In software terms, imagine an article about launching an MVP that starts off with "so I copy-pasted some PHP from StackOveflow and ran it with default permissions in the same database that stores customer credit card details ...". There doesn't need to be a long digression about why that's bad.
> will tie that account directly to the political success of whoever was sitting across the desk from you when you signed the paperwork.
I don't think the end user of a bank's services can or should be expected to know about, or take this factor into consideration when choosing to close their account or drastically change how they use it, however.
It's not personal, it's business, and to a certain extent any large US domestic bank is functionally equivalent to the other in features, fees and risk level.
If I closed everything I have with Wells Fargo tomorrow and reopened it with BOA or Chase I would expect about the same functionality.
It’s not the historical or national norm to be handed a $1M check, drop it into a bank account like birthday card money, and then conduct all your banking business digitally. Some of that’s a startup thing and some of that’s a generational modern thing.
Traditionally, businesses establish relationships with their banker (a person), who helps steward their accounts, apply for loans, understand and pursue savings and investment options for held balances, etc
Banking organizations are built around this very very long-standing model. There are processes and spreadsheets and powerpoints and dumb little mugs for high performers and all those things.
Clearly, with the consolidation of banks and the pervasiveness of online banking, this is in the process of changing. This story captures one of those transitional moments, where a young kid with a startup is completely blind to what bankers expect to be doing.
But your version of “how things are” is very contemporary, and wasn’t quite the way of things when this story takes place.
Same. I don't really understand what he did wrong, and it seems as though everything worked out okay in the end. As as for "lessons learned," I really don't know if there are any. Just an amusing story of Chase coming to grips with "startup banking" and the founder gaining some local notoriety.
He was just clueless to how banking worked at the time and how bankers expected to be involved with helping new clients gradually grow their banking relationship.
He was a young kid who intuitively engaged in anonymous, electronic, modern banking before bank branches were really there themselves.
To young people who came up after him, his intuitive way became more the norm — especially for VC startups — and the idea that you might buy your banker a bottle of nice whiskey for the holidays makes no sense. But for Alex, the banker, who had a kid come in and grow an account to $35M and then silently drain it without ever consulting with him, the whole experience was alien and absolutely bewildering.
You can think of it as a culture clash or maybe a missed opportunity. More awkward than wrong.
By 2012, the banking industry had spent two or three decades educating customers to teach them that banking is an impersonal transaction which takes place via ATM machines and the internet, and never, ever, ever involves talking to a bank teller behind a counter. They've been trying to de-personalize banking since back when I got my first ATM card in 1983 or so.
Yea, the story isn't how banking online is anonymous and magic, its about how branch banking is extremely regional, and how few of them deal with "pre money" startup financing, and were _structurally_ unprepared to handle it. "I have 35M but need to slowly spend it down until the next funding round" is not what most businesses in LA look like, and the cash infusion presumably allowed the bank to expand lending in the area, and business banking. And when those funds leave, well, there might even have been layoffs.
> They've been trying to de-personalize banking since back when I got my first ATM card in 1983 or so.
For personal banking, absolutely. But the property management business I bought, and then sold, had dedicated account managers at both banks we used, and both they (and the previous owner of my company) had an expectation of personal contact and fairly regular conversations--both because our customers also used those banks, but also just because it's the norm.
I wonder how Alex and Alex's boss would tell this story?
[edited below - because threaded comments can come across wrong]
I wonder if how Alex's boss would tell this story is - my employee landed a $35m account, then failed to manage the account successfully, and when $35m walked out the door, we never understood what we did wrong
Yeah, but that’s a problem with Chase, not a problem with the guy telling this story.
I don’t know about you, but it seemed fairly obvious to me that our protagonist didn’t see the bank as anything other than a convenient stash of money.
Yeah, for sure. If anyone made a real "mistake" here, it was Alex, who failed spectacularly at managing the account.
If our protagonist saw a bank as a convenient stash of money, then that's all it was for him. If it were to be anything else, Alex would have been the person who would inform him of that, something he clearly massively failed to do.
If I happened to start a startup and be given a $35M check, I would do exactly what the person in this story did, for the same reasons, and unless a bank person told me otherwise I wouldn't think anything more of it. A bank is a bank is a bank until they demonstrate otherwise to their customer, not the other way around.
He didn’t do anything legally wrong. He didn’t consider the practical implications of deposit banking. For most of us our balances are low and things just work. Pulling $1M can be problematic if not planned in advance.
Kinda what happened to SVB. They’d likely have been fine if they didn’t tell people they needed money.
The proper procedure for interacting with banks as a startup is knowledge that isn't meant to be disseminated. The entire point this piece is the asides: to make sure the uninitiated know their place by signalling over their heads. The initiated have nothing to learn here, it's just a funny story.
According to other comments here[1], he missed on a lot of cool stuff by not engaging with Alex, as usually multimillion dollar account managers have a very personal relationship with the CEO of that company.
But what if you don't want to have business dinners with people after work hours, don't play golf and don't have any kids for the name memorization?
Anecdotally I've worked for a company that bought a lot of lasers. Like, really, a lot. Enough lasers to make the laser vendor fly our sales representative out to our city and hang out visiting us for a few days. They would offer to take the whole team out for dinner and drinks. It was just weird and uncomfortable. I have other things to be doing with my personal evening between 5:30 and 9pm.
A good professional banker, would have helped with essentially every finance related issue the poster may have had. Including getting accounts more organized to help with earning more than the .01% banks usually pay for their checking accounts.
It's like concierge banking, you get 1 person that will just make all of your bank and finance problems go away. You need a house loan, your person would just make it happen. You need financing, they can help with loans, going public, seed rounds whatever you need. They can also help you locate attorneys to help draft financial contracts, etc. Tax specialists that can help you minimize taxes, etc. There isn't much of a limit around both personal and business finance they wouldn't at least help get you pointed in a semi-sane direction with.
Assuming Alex was any good, which clearly they weren't that good, since they did such a terrible job of explaining all they could offer to the blog post writer. That's partly on Chase, but probably mostly on Alex.
We have a banker and I needed to buy a car recently, I told them my plans and they analyzed various payment options(loan, leasing, paying cash) and gave me a recommendation(just pay cash). When it came time to actually buy the car, the dealer wouldn't take a credit card for the entire cost, so my banker organized a cashiers check so I just walked into the closest local branch, picked up the check and was back at the dealer in 5 minutes(not including travel time).
Sure they can do the whole smooozhy mess as well if you really want that, but we don't, so my banker doesn't do any of those things with me. They know the sorts of charities and things I like, so if the bank ends up sponsoring something in my area, they will let me know and organize tickets or whatever if I wanted. I rarely do those sorts of events, but there are certain ones I like and my banker knows that and just organizes tickets and what not for those events once or twice a year that I like doing.
This is so true. Around 2015 I went to buy a house I the Bay Area. I was at a new startup and my income was quite low. I applied for mortgages but got turned down. Rules about income (your paycheck not balances) to payment were quite strict after 2008. To be clear I could write a check for the house. I call my money guy (I had a modest exit a few years before). He said, “I thought we talked about this at the start, but you need anything financially, legally, etc. you call me.” 24 hours later I had a loan from a private bank that did not have to follow the rules because they did not sell the mortgages on. My advisor has a JD and a CFA and is worth every penny as I have neither of those.
I have a new startup now and bank with Chase. I will say the banker asked the right questions, understood this was a startup and went into all they could offer. My biggest gripe with Chase that some above said SVB sorted, is the ability to get a credit card in a company name without being tied to personal, at the size we are.
100%, a good relationship with your banker makes financial issues a non issue. that's literally their job, make your financial issues non-issues.
Obviously good relationships with good bankers only happen if you have sufficient assets that financial problems are not usually a lack of assets problem. :) Every bank will be different in the $$ amounts/assets you need to have to get access to the concierge banker pool. Also every bank has a different name for their private/concierge banking.
Generally speaking $1M or more is sort of the minimum amount to have access to the banks good banker people. When you get into the 20-30M range, you can start thinking about sharing a private office with a few other people also in that range, and when you get into 100M or more you can think about starting your own private office, where you hire a full time money person or three to manage it all for you, and they will deal with the concierge bankers. Private/Family offices are sort of concierge banking plus. The Plus is, they will handle your entire family(however you choose to define it), they will teach you and your family whatever you need to know, they will handle budgets, paying bills all that stuff. They will sort out actually purchasing stuff, organizing trips, generally the sky is the limit here.
At BOA, with $100k worth of assets you can get into Platinum Honors which is good banking, but not at the same level as concierge banking. I.e. you don't get access to private banking, but whenever you walk in or make an appt, the BOA person you get will generally do their best to make you happy. Chase has a similar sort of program I believe, but am unfamiliar with it.
It was then he remembered that Hashicorp account. When he was shown the door at Chase, the account had a few hundred grand in it. Through knowledge of internal procedures and some social engineering, he began fraudulently obtaining funds from the account. He hoped they had forgotten that the account existed. It must be pennies to those people, they shuffle around millions without batting an eye.
Then, one day the cops show up at his seedy motel room. He was arrested for the fraud and found guilty. The judge was particularly heavy-handed and gave him 10 years, despite no priors.
Alex kept a picture of the founder of Hashicorp on the wall of his cell all those years, blaming him for the turn his life took. He did push ups and other exercises to keep himself somewhat sane. All the while, dreaming of the day he would get out and take his revenge.
Fast forward to today and Alex is recently released from prison. Biding his time, plotting his revenge...
Alex spends a lot of time on hacker news, hate-reading about these startup types that ruin lives. Getting into the mind of his enemy. One last twist, Alex is me! /s