Low-Risk Investment Instruments for Venture-Backed Startups

This article is the second in a two-part series on Treasury Management for startups. Also see part-one, Dimensions of a Basic Treasury Policy for Venture-Backed Startups, and download Burkland’s sample Treasury Management Policy.

An active approach to treasury management helps startups reduce financial risk while putting excess cash to work. In my previous article I explained the importance of a Treasury Management Policy and outlined the key dimensions of a policy. This article provides a list of commonly recommended low-risk investment instruments for investing excess capital. Most of these instruments deliver market-based returns, currently around 5%.

Common Low-Risk Instruments

US Treasuries

US Treasuries are bonds issued by the US government with maturities ranging between 30 days to multi-year. An important feature of US treasuries is the ability to hold them directly in the company name.

Bank Certificate of Deposit (COD)

A Certificate of Deposit (COD) is a special type of bank savings account that holds your funds for a set period of time in exchange for a fixed annual percentage yield. CDs offer predictable returns and are FDIC-insured up to $250K. Deposits above $250 are beyond the FDIC insurance level, and are exposed to bank risk.

CDARs (now INTRAFI)

CDARs are a good option for startups with more than $250K in excess cash to invest. CDARs are laddered CDs with tailored maturity timing. Deposits are spread across multiple banks such that no single account exceeds the maximum $250K FDIC insurance.

ICS Accounts (Insured Cash Sweeps)

Insured Cash Sweeps (ICS) accounts are similar to CDARs, except deposits are held in Money Market accounts rather than CDs. Deposits are spread across multiple banks such that no single account exceeds the maximum $250K FDIC insurance.

Money Market Funds

Money Market Funds are similar to high-yield savings accounts. They deliver lower returns than CDs, but provide access to withdrawals and deposits like a normal savings account. Like CDs, Money Market Funds are federally insured up to $250K.

This article is part-two of a two-part series on Treasury Management for startups. Also see part-one, Dimensions of a Basic Treasury Policy for Venture-Backed Startups, and download Burkland’s sample Treasury Management Policy.

Good treasury management reduces risk, maximizes cash, and builds confidence with your Board of Directors and future investors. Talk to a Burkland startup CFO about your treasury management needs.