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!