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Comment by jschveibinz | Hacker News Reader

Startups with good VC and investor relationships will most likely make payroll and pay bills through short term loans from the investors until they can access their funds.

But it is a good lesson in money management…something about eggs and just one basket?

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Here’s somethingI don’t understand. Say you raise $100m funding round. Investors just give you the entire amount, in cash? And companies just put that entire cash amount in a bank?

It seems like it would be better for VCs to keep the money, invest it (in, I don’t know, the S&P500), and then pay out to the companies on a monthly basis or some other terms.

I can’t fathom how there are hundreds of companies, each with 10s of millions of dollars, just sitting in a zero interest bank account?

They don't have to be sitting there. A startup with a good person running finances will also have short term investments (should not be S&P though). Not sure about all startups in general but in my experience so far, this is what happens.

Let's assume most companies don't generally have drooling morons for CFOs because, well, they don't. The majority of unneeded funds are invested somewhere, most likely a managed fund. So the amount of cash sitting at SVB earning zero percent interest is relatively small. But when you have 30 people making $120/yr, and payroll is due this week ($300k), and your $1m/month AWS/GCP bill is also due this week (skip the rent of the office since everyone's working remote); the SVB account will have $1.3 million in it to pay upcoming obligations.

Some startups just moved excess funds into a money market account at SVB (managed by e.g. BlackRock)..

I'm not sure who is ultimately custodial of that money, and whether it's at risk today. My instinct is that it's at BlackRock, any idea if that's true?

Right. This is the crux of the matter.

Laddered CD’s, money markets, treasuries and other semi-liquid fixed income investments are probably better than the S&P500. Most boards (and shareholders) would frown on investing funds in the market. The value is supposed to be in the company, not the stock market.

It’s a good idea to collateralize (leverage) the funds following a raise for a line of credit with one or even two banks to have short-term cash options. The longer you build a trust relationship with a bank VP and use a line of credit responsibly, the better position you’ll be in when it’s crunch time or there is a big opportunity to go after with big short term cash requirements that can’t come from selling equity.

I’ve seen too many product-oriented startups try to raise bridge rounds because they are cash poor when they should have secured a banking relationship when they had funds available.

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