I read the whole story and I'm still struggling to understand what you did wrong here. You indicated many times "I know, that was a mistake" (or similar phrases), but each time I was baffled because I saw no mistakes. It was your business, and you had every right to move around the funds within your account. What gives anyone at Chase the right to say diddly squat about how you manage your business' finances?
I don't think he was trying to imply that he did anything wrong. He was admitting the ignorance regarding how banks and banking work... plus acknowledging that a lot of readers will have had experiences that would make them think "Oh you young fool."
In 2022 I lost my business banking and had to shut down a business that I owned for 20 years because it was related to the adult entertainment industry and, despite being completely legal and aboveboard, a single wire transfer that got a little bit of scrutiny resulted in them asking questions about what we did and, knowing that I was doing absolutely nothing wrong, I answered all of their questions truthfully and completely. A few months later I was told that we "fell outside of their risk appetite", our accounts were being closed... and for two months we searched for any bank or credit union in Canada but none would take us.
A lot of industry insiders had that exact reaction: "Are you stupid? Did you not know?! You NEVER admit that you're in this industry you moron!" etc. We even had a very sympathetic branch manager suggest that we re-incorporate, re-brand and hide what we do (a front, in other words). I couldn't do that. And I mean, we had no issues for 20 years. 10 of which were banking as a corporation (was personal accounts before that since we ran it as a proprietorship) and I thought that being in Canada we were pretty progressive. No one I told on a personal or professional level had ever cared. So why would the banks? We were lawful so why should they care?
Chargebacks. Tons of people buy porn on a card then later deny it when their SO finds the bill.
The industry is rife with this kind of fraud, and chargebacks represent tangible risk of financial loss, so banks just blanket ban working with certain industries.
People who sell precious metal jewelry for credit card payments are another.
That's why adult industry merchants are a thing, like CCBill. They have been around for decades and its kind of a non-issue. Can still accept Visa, MC, AMEX, etc.
source: used to run porn websites back in the early 00s.
How does something like CCBill stay in business when the card networks themselves have strict guidelines on chargeback rates that'll get you booted from the network?
Presumably, such merchants are basically outsourcing their chargeback resolutions to CCBill, who I assume is quite good at fighting them via proof of purchase.
They charge 10% (or at least they did ~10 years ago, probably higher now) and require you maintain a 30% reserve and then they use that money to continue to lobby Visa/MC to prevent competition.
If this was the main reason they would just charge more to process the payments or add a longer hold period.
Honestly GP just sounds like wrong founder market fit. GP has a moral spine and was operating in a market where you must forgo it.
Nothing to do with charge-backs as our bank was not providing payment processing for us. We ran a "free site" that made its income from referring subscription sign-ups to paid sites through their affiliate programs. We sold nothing direct to consumer. Our customer was other adult websites.
The banking services they terminated consisted of a single business checking account, business savings account and company credit card. That was it. That was what they deemed "too risky."
We learned from someone who used to work at Chase's compliance department that most big banks just have a flat-out ban on working with any customers that are involved in the industry in any capacity what-so-ever due to concerns over serious things like human trafficking. It was the fact that we were distributing [lawful and traceable to the producer] content that made them not want us as a client.
> You NEVER admit that you're in this industry you moron!
This can bite you, though unlikely. Look at Fed Lisa Cook. Probably at some point she thought it'd be okay and she's good for the money and it's just a bureaucracy to bypass. It's a very small thing if you compare to ... uhm ... what Trump did. But it's biting hard now.
TFA didn't really explain the mistake.
What I think it was:
1: Chase's business account wasn't appropriate for a tech startup; nor was it appropriate for the amount of money Mitchell was handling.
2: When your bank calls you after a very, very large money transfer, you should take the call.
That being said: In today's world where every other phone call is some telemarketer trying to scam you or otherwise sell you something you don't want or need, I can sympathize with why Mitchell blew off the first call.
They basically had no problems through $35M+ of money coming in except a few phone calls trying to sell him some banking services... I wouldn't really call it 'not appropriate' for a startup... All it was is probably the guy trying to say "hey maybe you'd be interested in parking some of that capital in a term deposit" or offering some credit products...
It is a bit weird how actively the guy tried to engage but it probably is just because it was one of the largest accounts opened through that branch - if they'd opened an account with the same bank but a branch in down-town SF instead of in the suburbs of LA then they would have had an account manager more accustomed to that kind of business and it presumably wouldn't have been as weird...
I certainly wouldn't label that 'do you need help' opening as 'engagement'. Something as simple as 'that's a lot of cash just sitting in that checking account, there are a few better options that could get you good returns on that while still being easy to use for expected expenses' would have been actually engaging.
See in this thread:
https://news.ycombinator.com/item?id=45058480
> If you are the customer you want a bank that understands what kind of inflows/outflows you’ll typically have. The bank wants to manage the risk, and you want a bank that doesn’t freak out at what seem to you to be very mundane transactions.
https://news.ycombinator.com/item?id=45058894
> A bank account is only insured up to $250k by the FDIC.
My guess is that there were millions sitting in a checking account earning 0.015% interest.
Interest rates weren't great back then, but even still you could get 1.5% easily.
All in he probably left a few hundred thousand on the table.
Your answers are appreciated, but they beg further questions. Do you mind that I inquire further?
>1: Chase's business account wasn't appropriate for a tech startup; nor was it appropriate for the amount of money Mitchell was handling.
What properties make it inappropriate for a tech startup, specifically? What would be appropriate instead, and why?
>2: When your bank calls you after a very, very large money transfer, you should take the call.
He did take the call, but I take your answer to mean that Mitchell and Alex didn't have the right kind of conversation on the call. Is that correct? If so, what ought to occur on a call that follows a large transfer?
The bank account was appropriate for small businesses. IE, restaurant, laundromat, ect. This became clear when the article explained that there was education for tellers about what a tech startup is.
Mitchell didn't take the call. He ended the call as quickly as he politely could, short of hanging up on Alex.
Edit: I've had a few bank tellers advise me on how to adjust my bank account correctly in the past. I'm going to assume this is what Alex was trying to do.
I might also point out that, around this time, Wells Fargo tellers were very pushy and would make calls like this. (I got one) It later came out that they were under intense pressure to sell banking services that nobody wanted.
Thanks for answering!
So there is some set of services that are useful specifically to a tech startup but not a restaurant, but then there are a category of services that "nobody" wants, neither restaurant nor startup. Do you have an examples of any of those categories?
I am not asking because I disbelieve you. I am asking because I find this all fascinating, but it seems my imagination is lacking! What would I want from a bank account as a tech startup, versus a non-tech startup, versus a restaurant, that the bank wouldn't already give me when I sign up for a normal business account?
You said you were "advised to adjust" your account. Again, I apologize if I come across as ignorant, but what kind of adjustments?
(I’m not the person you replied to.)
My understanding is that people with financial training don’t think about money, they think about risk. If you are a banker and ask yourself “What is the probability that this 100 deposit will be here in another 30 days?” you might answer differently depending on what you know about your customer.
- If you think that your customer will withdraw 50 in the next 30 days, you might take the other 50 and invest it in a 30-day CD, and take the other 50 and just hold on to it.
- If you think all 100 will remain in the account the entire time you could invest all 100.
- etc.
If you are the customer you want a bank that understands what kind of inflows/outflows you’ll typically have. The bank wants to manage the risk, and you want a bank that doesn’t freak out at what seem to you to be very mundane transactions.
A bank account is only insured up to $250k by the FDIC. Chase is a very safe bank, but the amount over that is still not insured, so it's not safe.
He also didn't get any extra controls on the account - you can see from the end of the story that they just forgot about it and someone stole $100k of it!
> So there is some set of services that are useful specifically to a tech startup but not a restaurant, but then there are a category of services that "nobody" wants, neither restaurant nor startup. Do you have an examples of any of those categories?
It wasn't a specific service, it was that Wells Fargo employees had a "performance metric" (which I understand in certain postapocalyptic hellholes translates to "a threat to your livelihood and your ability to receive medical treatment if you fall ill") on the number of products each customer was using. So they would encourage customers to open extra savings accounts, credit cards etc. (or some of the more enterprising employees would skip the phone hassling stage and just open these accounts).
The teller who called me basically gave me awful service.
I visited the bank a few days earlier because they sent me a debit card that I didn't want. (I wanted to switch it to an ATM card because it's harder to commit fraud with them.)
The teller basically didn't listen to me and tried to push services on me for 15-20 minutes. Eventually he realized I was getting extremely frustrated and helped me do what I needed to do.
The call from the teller a few days later was extremely unexpected, and I was justifiably curt. I said something like, "I don't want any new banking services, there's no reason for you to call me."
> You said you were "advised to adjust" your account. Again, I apologize if I come across as ignorant, but what kind of adjustments?
A few months ago, a teller offered to move my savings account to a higher interest version. I just had to maintain a minimum balance. A similar thing happened when I had my first summer job before college: A teller offered me a higher-interest money market account, it was just limited to something like 4 withdrawals a month.
> Do you have an examples of any of those categories?
I'm not an expert in startup finance, but I'll try my best.
The mistake that Mitchell made was kind of like keeping all your liquid assets in a checking account. Imagine if, instead of investing in a 401k (or similar,) retail investments, CDs, savings accounts, ect; you just put your entire life savings in a single checking account. Not only would you sacrifice a massive amount of interest, you would probably lose FDIC protection as your account grew, you'd be at risk of someone forging checks, and you'd be at risk of debit card fraud.
Startups often talk about their "runway." This is how long the startup can pay their employees, rent, and other bills; if they have no income. Don't quote me, but this is usually something like (roughly) 2-5 years.
Now, keeping the "runway" money in a single account is kind of, to put it bluntly, dumb. (It's like if you kept all your liquid assets in a single checking account.) Most of it should go to low-risk investments, like CDs and other high-interest savings accounts. I'm sure Silicon Valley Bank has a very straightforward way (for startups) to do this, that Chase doesn't have.
> What would I want from a bank account as a tech startup, versus a non-tech startup, versus a restaurant, that the bank wouldn't already give me when I sign up for a normal business account?
Remember the term "runway." Restaurants are typically profitable from day one, or become profitable quickly. They spend roughly as much as they take in. Startups often run at a loss for many years before they become profitable.
Likewise, a restaurant might have to pay back a loan that it used to buy equipment, renovate, or purchase the business. Startups hold onto their investment as "runway" instead of paying back a loan.
I'm going to assume that Silicon Valley Bank has products built around the fact that a startup has a large sum of money that it spends very slowly, versus a restaurant that needs loans and spends money as quickly as it comes in.
> I'm going to assume that Silicon Valley Bank has products built around the fact that a startup has a large sum of money that it spends very slowly, versus a restaurant that needs loans and spends money as quickly as it comes in.
That's what SVB assumed, and they were very wrong.[1]
[1] https://en.wikipedia.org/wiki/Collapse_of_Silicon_Valley_Ban...
Sounds like they got greedy:
> Some banking experts said that the bank would have managed its risks better had it not been for the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), enacted in 2018 and supported by SVB CEO Greg Becker, which reduced the frequency and number of scenarios of required stress testing implemented under the Dodd–Frank Wall Street Reform and Consumer Protection Act for banks with under $250 billion in assets.
Very informative. Much appreciated.
If the best Alex could do (or that Chase tells their clerks to do) was "are you sure you don't need anything?" I think it's the bank's fault.
Considering how we receive so much junk communication from banks one would imagine they'd be more vocal about what the issue was.
> He did take the call, but I take your answer to mean that Mitchell and Alex didn't have the right kind of conversation on the call. Is that correct? If so, what ought to occur on a call that follows a large transfer?
I would echo this question. If my bank called me and asked if I needed help, why would I say yes? I got money, the bank is holding it, everything is going great! This really feels like Alex was trying to ingratiate himself with a big client but communicated that really poorly, such that the message of "you are a big deal so I want to give you top tier service" never came across.
> I got money, the bank is holding it, everything is going great!
Until your account is many orders of magnitude larger than the other accounts. I suspect the typical "business" account was well under a million. See https://news.ycombinator.com/item?id=45058480 to understand why this was a big deal for the bank.
Honestly this was partly on Alex, but again, largely on Chase's banking practices. When a transaction of that size comes on the radar, you don't just ring up compliance to verify records internally. You also bring in the big guns from Main Office (aka the regional business banking HQ) and, along with Alex (as the point of contact), educate the business customer as to what can be done. This was what happened to me at Credit Suisse (RIP) after I had a similar, albeit smaller, transaction happen for my personal account. They were also extremely helpful when I wanted to get started with setting up my current trading business. Oh, and I'm still in touch with most of the people who helped me through that journey, even though they've left for other shores.
But again, Alex would not have been able to do this because Chase might not have had any policy about how to redirect customers to the appropriate type of banker. Which is kind of stupid for a megabank of its size.
It's not even an indication of fault. It's actually their internal sales/marketing system that flagging these messages. When they notice something like a large deposit, it triggers a message because they want to sell you a new account. Maybe it's savings, a CD, or you're getting ready to buy a house and they can help you with a mortgage. The average teller or even customer service person can't turn off these notifications, although, you may have some ability to opt out of them. Unfortunately, I find opting into useful notifications also opts me into useless ones, so I just ignore the texts...
Your whole arrangement of having an operating account separate from your wealth accounts is highly regular.
Edit - sorry realized I replied to a reply! Put air quotes on You/Your
The biggest thing to me imo is that everything was in one account while fdic insurance is only 250k although if chase goes out of business you probably wont need the money anyway. Also specialized startup banks come with a lot of perks for companies and founders and chase evidently didnt (or just had account rep who sucked at his job)
It's quite a lot more important to diversify funds for procedural risk than bank failures, although SVB certainly illustrates that they do happen.
More likely, the bank will put a ~$1b hold on your account while they investigate suspicious transactions, and your options are to whistle, sing, scream, or twiddle your thumbs until they are done.
So having 4-5 total accounts, ideally unrelated to each other in terms of legal owners (differently-named subsidiaries are usually the way to go, I understand, though I am far from an expert in such matters), will enable you to continue to operate your business while bank A does compliance on your accounts.
If you run into a situation where banks A through F all put holds on your account, you need a good RICO lawyer or equivalent. Different class of problem, and different likelihood of happening, and the kind of thing a great CFO plans around.
Most banks have dedicated startup bank account tier where you get many perks (AWS/GCloud/azure credits, transactions fees waived for the first few years, accounting software discounts, virtual credit cards) so it's a good idea to open that account instead of a standard business account plus he had $35m just sitting there in a checking account if he has opened an account with a bank that is more experienced in dealing with this type of businesses their RM would have suggested to keep certain amount in the business account and create another saving account where most of the money would have earned interest or invested in some fund. So I think maybe he is implying that due to these mistakes he missed out on personalized guidance.