As a founder or startup team member, you understand the importance of liquidity in your company’s success. With sufficient funds, you can navigate the challenges of entrepreneurship and achieve your vision. However, when cash reserves dwindle, the outlook becomes bleak. In today’s economic climate, securing funding has become increasingly difficult.
The Changing Funding Landscape
The startup funding environment has undergone significant changes over the past year. Rising interest rates have made debt more expensive, and the bar for securing it has grown taller. According to CB Insights’ latest State of Venture report, total venture funding declined by 34% in Q3 2022 compared to the previous quarter.
The Importance of Treasury Management
With fundraising becoming increasingly challenging, founders must prioritize treasury management to make the most of their current cash reserves. Whether you need to extend your existing runway or have just closed an extension, managing your company’s liquidity is crucial for survival.
Your Office Space Isn’t the Only Thing Impacting Your Runway
Inflation has made everything more expensive, meaning your current cash reserves won’t go as far as they would have a few years ago. For example, recent price hike announcements by major cloud providers show that cloud computing – one of the biggest expenses startups incur – isn’t immune to the effects of inflation.
An Active Cash Management Strategy
To optimize your reserves using fixed-income instruments, you can add days, weeks, and months to your runway. This will give you the resources needed to support your company’s growth strategy and get you to your next funding round. By adopting an active cash management approach, you can take advantage of higher interest rates, which positively impact returns on U.S. treasuries and other fixed-income assets.
The Fed Isn’t Finished
Many people underestimate the duration of high interest rates. As its fourth consecutive 75 basis point rate hike shows, the Fed recognizes that this environment may persist longer than expected. However, this presents an opportunity for startups with cash reserves to use a higher-rate environment to their advantage.
Bespoke Treasury Management: More Accessible Than Ever
Large global organizations once had dedicated treasury management teams and services, but now fintech innovation has democratized bespoke treasury management. Corporate treasury advisers today help growth-stage companies manage liquidity while optimizing day-to-day cash as interest rates climb.
Develop a Cash Management Plan
Founders should recognize the importance of treasury management and develop a plan to make the most of their current resources. By adopting an active cash management approach, you can extend your runway and achieve your vision.
Key Takeaways:
- Liquidity is crucial for startup success.
- The funding landscape has changed with rising interest rates making debt more expensive.
- Treasury management is essential to make the most of current cash reserves.
- Inflation has increased expenses, and an active cash management strategy can help optimize reserves.
Conclusion
In conclusion, liquidity is the lifeline of your company. With sufficient funds, you can navigate the challenges of entrepreneurship and achieve your vision. However, when cash reserves dwindle, the outlook becomes bleak. By prioritizing treasury management and adopting an active cash management approach, you can make the most of your current resources and extend your runway.
Recommended Reading:
- CB Insights’ latest State of Venture report
- "The Importance of Treasury Management for Startups" by Michael Dombrowski
About the Author
Michael Dombrowski is the corporate treasury lead at Rho and an investment advisor representative specializing in fixed-income investments and corporate cash management.