The collapse of Silicon Valley Bank just some weeks ago was a shock to the financial ecosystem. It impacted the access to capital for many; it made us question our trust in our financial partners.
Founders, investors, and finance teams alike all navigated the recent events as best as they could. Many had to do this for the first time in their careers, considering the last time we had a major bank failure was during the 2008 Great Financial crisis.With that in mind, I would like to offer some practical advice on how both founders and finance teams can strengthen their risk management and cash management strategies. It is important to keep in mind that every company is different, and nuances matter.
The information below is an actionable rough guideline that can hopefully help you think about your own cash management strategy, without ignoring that your most important responsibility is scaling your business, and not optimizing for higher investment yields.
What is Treasury Managemen and Why It Matters
Treasury management refers to the processes, strategies, and policies a business uses to manage its financial resources effectively, ensuring liquidity, mitigating risks, and maximizing the efficient use of capital. It's a critical function that helps businesses stay stable in uncertainty and leverage opportunities when they arise.
Assessing Financial Counterparties for Treasury Management
Effective treasury management requires a thorough evaluation of each financial institution's stability. By analyzing a bank's capital reserves, risk exposure, and regulatory compliance, you'll reduce the risk of disruptions that compromise your company's liquidity and capital protection.
A lot of founders and finance teams have questioned if it's safe for them to bank with ABC, or how they can best evaluate the stability of their financial counterparties.
Banks are generally extremely safe, and there are stringent regulations in place to protect depositors. We all know that what happened some weeks ago is an outlier event. That said, banks aren't devoid of risk mismanagement (e.g., Asset-Liability Management) or irrational behavior (e.g., bad communication) as we saw with SVB.
The Federal Reserve and other regulatory agents actively protect deposit accounts with the standard $250k FDIC insurance limit.
In general, some of the underlying factors that can affect the stability of a bank are:
Their tangible net assets
The amount of credit risk or interest rate risk the bank has
The leverage ratio of the bank
And… The nature of their liabilities – how much of it's uninsured vs. insured?
Tip: Survey data reveals that 91% of respondents plan to maintain or increase their money market fund investments in 2025, compared to only 9% planning to decrease their positions, indicating a sustained shift away from concentrated bank deposits.
I understand most of us don't have the luxury to delve into banks' valuation, credit scoring, and solvency assessments; we just expect our financial partners to do their job and hopefully avoid bank runs in the future. However, questioning your financial counterparty risk and making a conscious decision about where to allocate your company's funds is relevant for running your business.
Why to Diversify Your Deposit Exposures
It's likely that as a reaction to the events of the past weeks, you've diversified your bank deposits across multiple institutions. Perhaps you considered the impact of reducing the concentration of cash deposits in your corporate treasury and investing in various financial instruments.
If you haven't already, I'd encourage you to consider spreading your cash deposits between three to four different banking institutions. This'll help you avoid any idiosyncratic risks and ensure you've got the correct guardrails in place.
Strategies to Mitigate Deposit Risk
Strategy | Description |
|---|---|
Diversify deposits across multiple institutions | Spread funds across various banks to minimize single-institution exposure. |
Use “too big to fail” banks | Prioritize banks under LISCC oversight with stronger capital and liquidity standards. |
Monitor regulatory status | Select institutions that are more tightly regulated and provide more transparency. |
Allocate treasury into safe financial instruments | Invest part of your funds in low-risk instruments to protect value and improve yield. |
Maintain liquidity balance | Preserve sufficient cash to support operations while reducing deposit concentration risk. |
Financial Instruments: Not All are Created Equal
Strong liquidity management is crucial for effective treasury management, ensuring your company can quickly access its reserves whenever needed. While I can draw on my background as an Investment Banker to discuss various capital allocation strategies, it's more important to highlight the immediate, practical steps that protect and preserve your working capital.
However, as a startup founder, I like to keep things simple. I think our main concern should be running and scaling our core business. In other words, 100% of our focus needs to be directed to that objective.
In addition, if you're VC-backed, our investors (General Partners — GPs) and our investors' investors (Limited Partners — LPs) trusted us with their funds and expect us to build our business and deliver on our thesis. We also have fiduciary responsibilities to abide by. GPs and LPs are financial professionals who can diversify their cash positions into complex financial instruments if they want to; when VCs buy your equity, they expect you to concentrate on building your business.
Having said that, we can take a few smart and simple actions aimed at protecting our capital while still obtaining some return to mitigate inflation.
Let's start with two simple questions to help anchor your decisions:
How much forecasted runway do you have?
How much liquidity does your business need? Consider short-term (days or weeks), medium-term (months), and long-term (years).
As a rule of thumb, if you've got 12–24 months of operating runway or more, you may want to think about creating a simple but effective cash management policy. For instance, the following time horizons can guide your capital allocation:
Short-term → Capital you need on a daily or week-by-week basis to meet operating needs. This can be allocated to cash deposits (spread among 3–4 institutions).
Medium-term → Capital you don't plan to use for a few months can be allocated to T-Bills, overnight loans (reverse repos), or money market funds with principal protection.
Long-term → If you've got enough operating runway and have investments you won't need to access for 12+ months, you can allocate these to T-Bills with a longer duration.
Understanding how much capital you need for each of these three time horizons will help you decide how to invest and allocate your corporate treasury.
A lot's been written lately about leveraging other financial instruments like corporate bonds to manage your treasury. Some founders have asked if it's fine to invest in equities, ETFs, derivatives, or even crypto. Frankly, I don't think it is. If you're a startup, stay away from assets that put your principal at risk. The risks simply aren't worth it. Keep it simple and focus on your business.
Writing a Simple treasury Policy to Make Things Clear
Prior to the collapse of SVB, most founders or finance teams had no real urgency in thinking about their treasury policy, and it's not surprising. The majority of finance teams were focused on extending runway, not managing unallocated cash.
It's important to acknowledge things have changed. However, I want to stress an important point: if your company is pre-Series-A, drafting a treasury policy may not be the most impactful project.
Nevertheless, if you believe this is important today, then following the guidelines shared below will definitely improve your operational best practices.
Writing your treasury policy is an iterative process, and keeping it simple is key. As your business continues to grow and mature, you'll find opportunities for iterating and refining it.
I encourage you to focus on the following goals:
Focus on preserving liquidity by matching assets with liabilities: answer how much cash your business will need in 3 months, 6 months, or 12 months. You can refer back to the time horizons shared earlier.
Focus on always ensuring principal protection: reduce your mark-to-market risk and be confident you won't lose any money.
To be clear, the first draft of your treasury policy can be three short paragraphs in which you set up your capital allocation goals and how you'll execute them. Then, simply present this at your next board meeting.
An example of how you can present this is:
Primary Objectives → preservation of principal, maintaining liquidity to meet cash flow requirements, generating modest yield on excess cash.
Roles and responsibilities → who manages investments, who reviews them, how often this review happens, and who's responsible for updating key stakeholders (e.g., Board of Directors).
Investment guidelines → approved and prohibited financial instruments, along with required duration, liquidity, and credit quality.
What investment guidelines should you consider?
When approaching tactical asset allocation, the focus needs to be on maintaining the necessary liquidity levels to satisfy your business's operational needs. We shouldn't ever compromise your principal (e.g., having to sell at a loss because you have an unforeseen liquidity need).
While I won't provide any investment advice, in practice it can look like this:
Pre-Series A: diversify your capital allocation among three to four operating accounts. Keep some funds in savings accounts, which typically provide interest.
Post-Series A: at this stage, you've probably got more capital reserves and are generating revenues. Consider money market funds or T-Bills with different durations (a T-Bill ladder).
Again, I'd stress that startups shouldn't consider corporate bonds or equity investments. They carry significant mark-to-market risk, have no maturity date, and compromise the security of your principal. It's simply not worth it to risk the capital you've worked hard to raise or generate by chasing a higher return.
Conclusion: Strengthening Your Treasury Management Strategy
Wrapping up, if you want to take only two things away from this, please:
Preserve your capital: this is your most important priority, and it means not putting your principal at risk. You can safely obtain yields to mitigate inflation with T-Bills.
Maintain liquidity and manage counterparty risks: use at least three bank partners, possibly combining a “small/agile/less cash deposited” bank and a “bigger/safer/more cash deposited” option.
Remember, finance teams or founders don't get fired for not generating an additional percentage yield on excess cash. Our purpose is to deliver on our companies' mission and ensure we can navigate a liquidity crisis, not chase yield. Make sure you follow best practices, and remember that the best thing we can do is run and scale the business.
By focusing on protecting your capital, diversifying your banking relationships, and selecting safe financial instruments, you'll set a solid foundation for handling any financial shocks while keeping your business goals on track.
