Tips and Information on managing your startup’s VC cash efficiently.

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Scott Orn and Healy Jones, Kruze Consulting

Cash management overview for startups

Cash management is a company’s daily administration of cash inflows and outflows, and it’s particularly important to startups. In their initial stages, startups don’t tend to generate revenue or profits, so cash management focuses on preserving the company’s capital and maximizing liquidity.

Key Tenets for Startup Cash Management

  • Capital preservation
  • Liquidity
  • Risk management

Capital preservation

Capital preservation focusing on protecting the funds you have, not investing for high growth. Venture capital investors invest in startups to build the business, and don’t expect founders to take on risky financial investments with their venture capital funds. That means that venture capital should be kept in secure investments for a couple of reasons:

  1. Investments with potentially high yields often fluctuate significantly in value, and investing in them requires a long-term focus of years or decades. Startups typically have runways of six to 18 months, during which they depend on those funds to pay expenses. If your investments drop in value, losses will shorten your runway and cost you credibility with your investors.
  2. Founders have a fiduciary responsibility to their companies and investors to act in the best interest of the company. High-risk investments that decline in value could expose founders to litigation.


When startup expenses need to be paid, you need liquidity – your funds can’t be tied up and need to be available to you. Certificates of deposit, for example, may provide a higher yield than money market funds, but they lock up cash for a set term. Cashing them early involves paying a penalty. CDs can have a place in a well-thought-out cash management strategy, but you’ll need to plan for different maturity dates as part of a CD “laddering” plan (see below), in which you stagger CD maturities so that funds are available each month.

Risk Management

Founders need to be very careful when choosing appropriate savings or investment vehicles for venture capital funds. It’s much better to accept a very low rate of return, or no return, rather than putting money you can’t afford to lose at risk by chasing higher yields. Established options like savings accounts, short-term Treasury bills, money market accounts, and carefully selected CDs are much better choices than more exotic investments. 


In financial markets, reward is tied to risk. To get a greater yield, you have to accept more risk. That’s why this criteria falls below liquidity and safety. You can look at investment options to optimize your yield, but under no circumstances should you look at high-risk investment options. 

No exotic investments

This criteria is cautionary. Exotic investments fall outside the traditional investment categories of cash equivalents, bonds, or stocks, which are investment vehicles with increasing degrees of risk. Innovative financial investments will carry much higher risk than traditional investments. Cryptocurrencies, for example, can fluctuate significantly in value, and a large drop could seriously impact your startup’s cash position. As a fiduciary, you could be held legally responsible, and a large investment loss means you will certainly need to have an uncomfortable conversation with your board; investors; any lenders; and possibly vendors, contractors, and your employees. 

Sound cash management for startups

Low-risk investments include things like Treasury bills and bonds, certificates of deposit (CDs), and high-quality corporate bonds. These options offer more yield than a standard savings account, and you can use them to create a bond ladder, with a variety of low-risk securities with staggered maturity dates. While each of these options typically require you to invest for a specific term, if you need cash earlier you can normally access your funds by paying a small penalty. 

Poor cash management decisions can affect both your current startup, and potentially any future ventures. Bad investments could lead to a negative perception that could make other investors wary of working with you. For startup cash management, safety and liquidity should be your warchwords. For more information about cash management for your startup, please contact us.

How can startups safely manage their cash?

This question is important for startups to consider, since a successful fundraising means you will probably have a significant amount of cash on hand. Your startup’s venture capital will be spent over time to develop your business, but in the meantime, you need to safeguard your funding. Many banks that work with startups offer cash management solutions, which are suites of financial products that combine features that are similar to checking, savings, and money market accounts, and will help you balance returns and risk, while providing access to the funds.

Three criteria for cash management: Yield, risk, and access

Your main considerations for a startup cash management plan should be these three criteria, yield, risk, and access. Each of these factors needs to be balanced against the others. 

  • Yield. You will want to get the best return you can without ignoring the other two criteria. As return increases, however, so does risk. Founders need to primarily focus on capital preservation, making sure your funds are safe until you’re ready to use them for business expenses. Your responsibility as a founder is not generating investment returns, but you should look for some yield while minimizing risk. A startup with $40 million that can earn 50 basis points annually generate $200,000, which could fund a hire. 
  • Risk. Risk increases among investment options with potentially higher risk, so founders should avoid investment vehicles like the stock market or high-yield bonds. Taking investment risk is not acceptable to your investors. Also, as a founder, you have a fiduciary responsibility to manage company assets prudently. A major investment loss could expose you to litigation, and it will almost certainly affect your relationships with current and potential investors. 
  • Access. The third criteria is liquidity. For business expenses, you need to access your funds easily. That typically means putting your funds in savings accounts or cash-equivalent options. You might set up a checking account for immediate expenses, a savings account to hold funds that can be transferred easily when necessary, and potentially a money market account that might generate a higher interest rate.  

Cash management products for startups

Banks that work with startups usually offer cash management solutions, which are suites of financial products designed to help startups handle funds efficiently while balancing yield, risk, and access. In addition to earning higher interest, many of these products will help you manage cash flows, including accounts receivable and accounts payable. If you’ve done a good job of fundraising, the next step will be managing those funds, so you can build your business.

Manage your capital with bond ladders

One way that startups can use their available cash more productively is through a bond ladder. A properly structured bond ladder can help you achieve some return, while protecting your capital and maintaining liquidity. A bond ladder is a portfolio of bonds and securities with maturity dates that are staggered to mature at key dates so the cash is available when you need it. Generally you’ll want a mixture of Treasury bills (which have short maturities from 13 weeks to a year), certificates of deposit (CDs), or even zero-coupon bonds. CDs are insured by the Federal Deposit Insurance Corporation (FDIC), and Treasuries are backed by the US government, so your funds are very safe. And, if you run into unforeseen expenses, you can usually cash out any of these by paying a small penalty.

Can FDIC insurance protect your startup’s funds?

Often startups that have raised significant sums of cash may simply choose to put the money in a bank account. After all, company officers have a fiduciary duty to manage company funds prudently, and bank accounts are insured by the Federal Deposit Insurance Corporation (FDIC). However, FDIC insurance is restricted to $250,000 per deposit, and if your startup has millions in venture capital, that’s not enough to fully protect your funds. Alternatives include money market funds, bond ladders, and network deposit services, which spread large deposits among a network of banks to maximize your FDIC insurance. 


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