Kruze Consulting's Advice on Startup Cash Management Policies

Kruze Consulting's Advice on Startup Cash Management Policies
Posted on Tue, 8 December 2015 by Scott Orn

Every week, our startup founders ask us what they should do with the millions in funding they’ve received from their latest venture capital round. Should they invest it, and where? What banks have the highest yields on savings accounts? How can we put this money to work for our company?

**TLDR Answer: Don’t worry about yield; there’s too much at risk. Park that money in a Money Market Savings Account at SVB, Comerica, Square One or Morgan Stanley. All of the folks below are amazing to work with and they were kind enough to share their thoughts with us.**

Kruze Consulting’s PerspectiveEvery Startup Founder and CEO should know exactly what type of securities the cash on their balance sheet is invested in. Some Founders think they should be maximizing return on investment with that cash, but Kruze Consulting recommends the exact opposite. Don’t let a slightly higher yield seduce you into risky cash management policies. We’ve lived through nightmare situations, like the Auction Rate Securities debacle in the last economic downturn. A CEO & Board can wake up to find out they didn’t realize the risk they were taking with their cash, and the startup’s money can be locked up indefinitely or worse, disappear overnight.

Kruze Consulting encourages its clients to invest in a very low risk vehicle. Founders should make sure they have sufficient liquidity, meaning the cash is available whenever needed. Don’t worry about the yield on the cash. After all, your Angels & VC’s invested in you for the company and products you are going to build, not because you’re a financial engineer.

Opinions from Kruze’s Favorite Startup Bankers

Cash Management is such an important issue, we asked our favorite Startup Bankers for their opinions and tips.

Liam Fairbairn of Silicon Valley Bank: “For corporate cash management for early-stage companies, capital preservation should be the highest priority. You do not want to risk losing a single dollar of principal from your investment. Liquidity should be the second priority. You want to be able to access your cash when you need it. You don’t want it to be locked up with early breakage fees. Yield should be a distant third on the priority list.”

John Benetti of Comerica Bank: “Given the rate environment today most (pretty close to all) of our clients keep their excess investable funds in our bank money account which is an interest bearing savings account. It’s fully liquid and provides a small yield. While the yield is small, a company would need to invest in CD’s or other securities with maturities north of 6-months to meet or beat that yield. Most startups don’t want to tie up cash for more than 6-months and their board approved investment policies are very focused on capital preservation as opposed to yield. Also fully government guaranteed securities are paying close to 0%.”

Jeff Griffor of Square One: “Not losing money is what VCs care about the most for this capital, the risk being in the startup’s business. Don’t take corporate bond risk and be wary of those who say you should. That is our startup investment philosophy in a nutshell.”

John Abreu of Morgan Stanley: “Morgan Stanley has some unique cash management options. Our global currency account allows startups – to hold, buy, sell, and wire almost all major currencies at a fraction of the exchange rate of big banks. This is especially useful if your startup is doing business globally. We also offer CD’s from over 10 different banks to get clients more FDIC and Yield.”


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