This Business News Story Was Uncovered By Us From: https://www.entrepreneurshiplife.com/where-should-a-startup-keep-its-idle-cash-to-earn-yield-safely/
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Every startup raises money to spend it, but not all at once. Between the funding round and the burn, there is usually a large balance sitting in a checking account doing nothing. With the average business checking account paying close to nothing and money market funds and Treasuries yielding far more, that idle cash represents a real lost runway. The challenge is earning a return without locking up money you might need next month, and without taking on risk that puts the principal in danger.
After the collapse of Silicon Valley Bank, that second concern became urgent. Startups learned that where you keep your cash is a risk decision, not just a yield decision. We asked five finance leaders how growing companies should think about parking idle cash safely.
1. Start with the tradeoff: safety, liquidity, then yield, in that order.
The single most important principle is sequencing. Preservation of principal comes first, liquidity second, and yield only after those two are handled. Founders who chase the highest rate first tend to learn this lesson the hard way. The practical version of this for most startups is keeping enough cash to cover several months of operations fully liquid, then putting the rest into low-risk instruments like government money market funds or a Treasury bill ladder where maturity dates are staggered so cash frees up in line with company milestones. Anything offering meaningfully higher yield than a Treasury money market fund is also carrying meaningfully more risk. There is no free lunch.
– Benjamin Döpfner, Founder and CEO, Vesto
2. Diversify where the cash sits, not just what it sits in.
The lesson startups took from Silicon Valley Bank was about concentration. It is not enough to pick the right instrument; you also have to spread ca… Read More
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