POST-CRISIS FINAL WORD: WHAT TO DO WITH YOUR CASH

Recommendations that are flexible, scalable, and stage agnostic.

Dan Rogers, CEO

I’m just back from New York FinTech Week, which was full of great energy, heady start-up speak, and lots of technology that will change the world and make financial services affordable for billions of people. Pretty amazing time. At the same time, it seems like the SVB collapse happened a year ago, and we’ve all moved on. But I haven’t. I’m still collecting ideas and learning from it, and want to share with you my synthesis and POV. Wherever your startup is, these recommendations are flexible, scalable, and stage agnostic.

WRITE AN INVESTMENT POLICY. It doesn’t have to be long or even mention the yield curve. Have your board approve it and execute it. Long before we had zero interest rates, this was common practice. I still have the investment policy from Bling Nation back in the day. A policy aligns the board, CEO, and financial leadership: it also shares accountability and leverages the smarts of everyone in the boardroom. Keep in mind, the current crop of startup finance leaders have never operated in a yield-bearing market, which means they’re not the experts in investment strategies. Investors are more likely to have smart treasury management strategies. Look to them, write the policy, get it approved, and implement it.

USE TWO BANKS. It’s so easy, why wouldn’t you? Put as much non-operating cash in the back-up bank as you can stomach. Ideally, 50%. Your current bank will give you lots of reasons to avoid this approach, but you should expect that from them. They make $$$ from your deposits. Keep in mind, your venture debt lender may have built your pricing on holding 100% of your deposits, but their own Chief Credit Officer would tell you to diversify and manage your risk. If you have venture debt, open another bank account, get a DACA (Deposit Account Control Agreement) and remember that you’re a customer – not a captive – of your bank. This is just smart business in 2023.

BUY SECURITIES. Hold at least 1.5x your last payroll in securities. U.S. Treasuries are a standard and safe option, but liquidating them in a crisis could prove challenging for a bank overwhelmed with web traffic. Holding a stable cryptocurrency in your company’s wallet is an alternative that can be moved quickly and spent globally if needed. That’s right: crypto. In a DeFi-enabled world, it will move a lot faster than the U.S. banking system in a crisis. If there is a real banking problem, your bank isn’t going to make it easy to remove your funds and make payroll. We all saw cases of founders funding payroll from their personal coffers and finance teams praying their payroll funds would arrive. If you’re in Treasuries or stable crypto, you’re one quick trade away from a stress-free payroll payment. P.S.: This is a great crypto use case.

Don’t wait for another bank failure to implement these safeguards. You’re working way too hard to experience that crisis again. Plus by implementing this approach, you’ll show your investors that you’re safeguarding their funds and their investment in your startup. Let’s do this!

STARTUP FUNDRAISING AND PAIN POINTS

Based on FintechMeetup Las Vegas Panel: How to Raise Capital in a Challenging Environment

Dan Rogers, CEO

I had the honor of moderating a panel in Las Vegas last week on this topic with world-class investors.  It was great to spend time with the pros who shared many of the insights that I’ve incorporated into this post.

Fundraising is hard in normal times.  Founders need exceptional plans, teams, and progress at every stage to compete with thousands of companies.  In today’s challenging environment, it’s even harder.  Valuations are down, investors are protecting their existing assets, and the exuberance of 2021 and 2022 has subsided.  Founders need to be deliberate in their preparations – because exceptional fundraising execution is just as important as your idea, your brilliant code, and your capable finance team.  Here’s the secret sauce.

LEVERAGE YOUR EXISTING BOARD AND NETWORK.  I can’t say this enough.  It’s their job and role to make connections and help you fundraise.  It’s good for them to protect their investment in your business, and also show their colleagues how smart they were to invest in your business last year.  Your Board will send you to like-minded investors, so you’re saving time on diligence.  Introductions from investors derisk you and your company in the eyes of the receiving investor and give you instant credibility above the crowd.  If you’re a seed-stage company and have no Board, use your network and financial advisors: they can achieve the same effect.  Relying on your Board and network will accelerate the process, save you time, and have compounding benefits.  

REFRESH YOUR DATA ROOM CONSTANTLY.  Every week you should be refreshing your Docsend account with slides, a model, incorporation documents, a cap table, pipeline reports, and sales materials.  The average VC looks at 2,000 deals a year.  They have no time to wait for founders to update materials in the data room.  Companies need to share their best selves in real time. When you leave the Zoom meeting, send the link to your data room so they can look at the materials that night.  Keep the momentum.  If it takes you two weeks to update your model and cap table, you’re not going to get another meeting.  Be ready to move as fast as your investors.

POSITION YOUR BUSINESS TO SUCCEED IN THIS EXERCISE.  If you have no momentum, a skinny pipeline, and two months of runway, investors will conclude that you don’t know how to run your own business.  From your own perspective, you bring no leverage to the term sheet conversation.   It’s a losing proposition.  Make sure you have at least 6 months of runway and can stretch to 9 months if needed.  Build a pipeline of clients: a lot of SMBs or some well recognized whales in your target vertical.  Unless you’ve done this five times and have the magic touch, you should run a smart, sound business based on the fundamentals.  90% of start-ups fail because they run out of money, and this simple idea will help you outlast the competition and be confident in the asset you’re selling to investors.

In the current environment, you need extra time, extra friends, and extra luck.  You can manage this challenging space if you follow the steps above.  Beneath each of these steps is a project plan of To Dos, so they should all be taken seriously.  If executed effectively, you will fundraise faster than your peers, build on your existing relationships, and get back to the business of building faster.