This is great. But as I said in another comment, you guys don’t owe us anything, we’re not YC shareholders.
But YC is so prevalent in the hacker community that is kinda associated with Open Source, is like we feel entitled to ask for explanations when in reality it’s just a private business. It’s an interesting phenomenon.
I think it’d be great if you could keep transparency in order to keep encouraging founders to apply to YC, but we have to learn that’s just an option.
Thanks Finbarr. The group partners and MD's and I know these are important and valuable programs, and there is a lot more we need to be doing for alumni and the experience after companies do YC.
I don't have more to share now, but know that I really value you and this note.
I will say that large % of the batches turn out to still be good companies later, sometimes much later. The journey of being a founder sets people up to do a lot more: YC alums are often great C-level executives at other fast growing startups, and/or just because their first startup doesn't work doesn't mean they don't go on to create great companies later.
The key thing about networks is Metcalfe's law: the power of a network is the square of its nodes. This is also what makes the Internet more and more valuable over time.
Those things together mean scale increases value for founders, and what we've learned is those effects are most potent early.
"Small business depositors at Silicon Valley Bank should be made whole."
Don't beat around the bush. You are asking for these depositors to be bailed out. "Depositors" is a weaselly way to say "companies that my friends and I have major equity positions in."
If these are great businesses, they'll find financing. Current equity holders will suffer a loss. That's how it's supposed to work. Eat your lumps and don't go begging for a bailout for your foolish risk taking and lack of due diligence.
Understandably you're trying to maximize the value of the equity that you and your friends own. But it's a bad look to pretend this is about workers paying their mortgages. If that's what you cared about you'd be signing a petition for mortgage forbearance or some other direct-to-worker bailout.
However you feel about the situation you have to admit there is a massive conflict of interest here. You have a clear financial incentive to have the American people bail out the companies you invest in.
These are deposits at a bank. We're advocating for protection of 37,000 small business accounts, a small number of which are YC.
We discovered about 30% of YC companies would not be able to make payroll even after the $250,000 insured amount if they were to wait months for their payments. That is detailed on the FDIC website currently as the process for remediation.
This petition represents the lived experience of thousands of founders, and this is how we are communicating this is a real problem that DC needs to be aware of.
Again, this is not about saving SVB, the bank that made decisions that led to this, nor their equity holders. This is about saving innocent depositors.
These are not small business accounts. These are businesses who took a risk, and put all their eggs in 1 basket.
A small business is the donut shop down the street, owned by a woman and employs 3 kids.
NONE of the SVB clients come even close to that. Startups are not small businesses. Startups take on an intrinsically large financial risk, whether funded by the founder, with his/her own money, or via VC.
This is on them for not having identified this risk and/or not hedged against it.
I looked at the list of signers of your petition. All CEOs.
How about ya'll put in 1,000,000 of your bonus into this. Then we'll talk.
Can you comment on what the many billionaires associated with the SV ecosystem are doing? Sounds like they have personal risk plus social responsibility, and (collectively) enough billions to bail out SVB.
I like how you explained that in the note. But my question stands. What do I get for bailing out those 37,000 small business holders?
It also seems odd that all 37k didn’t insure against bank collapse. That seems like systemic risk that they all took on.
I’m sure DC is aware of this problem. The issue is what to do.
It seems more fair to request that the government invest in these companies and in exchange for government cash, equity is given out. Or something of value. Otherwise it seems like the taxpayer is just covering the losses of lots of small business owners choosing to save money by taking on too much risk.
You are in the top 1% and you are asking for a government bailout.
Everyone knows that amounts over $250K were not insured. These are not "innocent depositors".
A lot of my portfolio companies are affected, but I will not lobby for a government bailout on their behalf.
It's not the right thing to do.
I 100% agree with you on lobbying for an expedient process, but if these companies have to take a haircut, they have to take a haircut. The strong will survive (and learn a lesson about risk management).
> Everyone knows that amounts over $250K were not insured.
This is technically true, but I think there's a feeling that traditional banks are de-facto safe places to keep money. Depositors losing money in bank runs feels like a 1920's problem.
The lessons from 2008 were to look out for risks of an asset class failing and that packaging risky, correlated assets doesn't make them much safer. The lesson here is sudden interest rate increases can cause bank failures. This was a mostly unknown unknown.
LOL! Neither "packaging correlated assets doesn't make them magically AAA, so we'll also commit ratings fraud", neither "uninsured money at a bank can be lost in sudden market shifts (or simply mismanagement or fraud)" are/were unknowns. These people took risks KNOWINGLY, because they were rewarded handsomely by it. Now and then it rears its ugly face and we're supposed to pay the check? Give me a break.
I'm struggling to understand how taking the risk of "uninsured money at a bank can be lost in sudden market shifts" can reward one handsomely. Is there some way I can make spectacular gains by depositing money in a mismanaged bank?
Honestly, you should be going back to the lobbying drawing board. This is going to be enormously unpopular with the general public. VCs are already very rich, even if they take a haircut. They already have huge resources to be able to extend bridge loans to the companies they‘re partial owners in. What does the tax payer get out of absorbing the costs of this systemic risk taking? Are you going to give the public a stake in your companies, or do you want to just take our money and give nothing back?
I do think it's good that you are doing that. What would be even better (and perhaps you are already doing this, and I've missed it or don't know where to look) is publicly calling on the investor class to put their hands in their pockets and make a charitable contribution to the next wave of up and comers. I specifically mean charitable, not for equity.
It seems to me that there's a lot of investors who could individually pitch in a few million without really missing it, but whose collective action would go a long way to mitigating the knock-on effects of a bank failure on small firms that are not themselves int he investment/financial engineering/risk management space, and can't be blamed (much) for trusting that a conservative-seeming brick-and-mortar bank would safeguard their cash deposits.
I think it's laudable that you're going to bat on behalf of YC companies, but you've got to be conscious of how it reads to the casual onlooker. 'Chastened investors rally round to help startups make payroll' is a much better headline than 'VCs beg Uncle Sam for cash lifeline'.
>We discovered about 30% of YC companies would not be able to make payroll even after the $250,000 insured amount if they were to wait months for their payments. That is detailed on the FDIC website currently as the process for remediation.
They'll get 40% back next week, enough to make payroll for a while, and another 50% later (possibly much later), and for that second part they can find someone with big pockets to buy them out early at a discount.
I don’t think that’s fair. I like how he’s at least engaging. And prefer how they are at least being honest about what they are doing and seem to be avoiding weasel speak more than other companies (ie, “we want to unleash the value of empathetic communities to resiliently respond to government billion bailouts”).
I dunno man, saying "these poor companies need money for payroll" to actually mean "we want a multi-billion dollar bailout to cover the risks that we profited from, funded by the people who would never and will never see a dime of those profits", sounds pretty weasely to me.
Do you and/or your friends personally have the assets to make SVB whole? If you were proposing to put substantial “skin in the game” (very dated 1980s business-speak) you might receive a more positive reception.
Right now, it is mostly a regional problem, since the “startup industry” did not diversify much outside the Bay Area, or the Pacific Coast. Industries with a broader national reach maintain a broader and deeper lobbying presence in Washington and thus get more Federal attention. Might be a lesson-learned here. Along with the most elemental due diligence in financial risk management.
As someone who is facing the prospect of re-skilling my career again after being "disrupted" out of my first career, happening a second time 15 years later due to AI, my sympathy for your founders is in short supply. Your founders may get screwed like the many, many workers out there that get screwed all the time by factors beyond their control.
I mean, if you can save the jobs of the people you funded, great. But, founding a startup is risky, blah blah blah... and losing a few or a few thousand hardly seems like a reason to call congress. At least no more than any other industry getting disrupted. We've seen, and perhaps you've been part of, putting huge swaths of people put out of work. Huge swaths of business out of business. Industries that came crashing down at no fault of the business owner, other than not being prepared for some an unseen stealth startup who leveraged prior institutional knowledge to come and take it all in a flash.
What's weird is that you can insure an account for more than that, it's just not free.
So if you had "substantially more" than that, you should be financially savvy enough to insure your accounts and pay for the insurance on them as a cost of doing business.
That's why we insure anything - in case something happens.
I found no information on how to do this with a cursory Google search. What comes up are other stratgies, like multiple bank accounts, each at different banks. Or instruments like certificates of deposit, which aren't suitable for payroll.
So if banks offer more insurance for a fee, I can't easily tell how to do this. My business banking account has nothing about such a feature, either online search or looking at the fees schedule.
I'd consider this obscure, even esoteric information. But I'd expect a CFO should know this. And I'd expect a venture capital fund would have an info sheet on avoiding consolidating deposits in a bank, given the 2008 experience. And yet... nothing.
Yep. I find it funny - though I feel bad for the small businesses that may have been oblivious - that a VC CEO is complaining when he effortlessly could have hired a financial consultant for a day to look into the first bank he encouraged his customers to use. A regional bank that had an obvious and alarming reputation of being the only place in town that would make high-risk loans to high-risk ventures. If anyone outside SVB was in the responsible position to avoid this situation, it was this CEO, and I’d suggest - if he truly believes in maintaining innovation and having those responsible suffering the consequences - that he personally go first in making his companies whole, rather than the taxpayer.
