What do start ups do with their extra cash? Say like they raise a big round. Have a few years of runway.

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They generally keep it in cash in bank accounts at banks like SVB.

Keep in mind that while headline raise amounts (200m Series C) are announced as one big number, the money may be dispensed in tranches as the company hits various milestones over the next 6-18 months.

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For 10m, cash. Most banks also offer higher-interest business accounts that yield 2-3%+ if you have seven or more figures.

Ideally, they manage it as they see fit for long-term success of the business. For example, they could make
strategic acquisitions, invest more in salaries and growth, etc.

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It will be spent eventually, yes. But do they have any treasury function to manage the cash in the meantime?

Any of that cash will be used until the next investment round, then receive another round just enough to fuel until it’s running out, like a relay race. They’re never supposed to have extra cash & if they do it’ll go to the top execs & other remaining goes to R&D or other type of use for growth because that’s what the investors want. Once you’re profitable to sustain you’re not a start up, & so idk what happens with extra cash then. Maybe use it towards more R&D, grow operations, loan it out, etc

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I don’t think this is accurate at all.

Start ups that raise cash, say $10M will not need all 10M right away. Ideally it will sustain the company until the next raise. This could be like 2-4 years in the future. So for sake of example, let’s say they use 2.5M burn per year.

What would they do with the other 7.5M? The answer is definitely not “pay it to execs” lol. Yes, they will put some into R&D but that is covered by the 2.5M of run rate burn.

If it’s sitting in cash it’s just losing value to inflation. So do these start ups invest it in something relatively low risk? Or what

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For larger rounds the money does not arrive all at once. It's committed capital that gets disbursed over time... sometimes based on certain milestones or triggers.

Similarly a VC with a 500M fund does not have 500M sitting around. They have 500M in commitments from LPs. When the VC wants to invest, the LPs release $x.

Whatever money a startup gets goes into a bank account. Anything more risky will raise red flags with investors. Remember, they are investing in the business not in a startup's ability to squeeze an extra percent of interest from the cash.

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I’m honestly not sure, but I highly doubt they use investors money to invest outside the business. Unless it’s a brokerage to hold the cash & earn small interest. Or business deals that would benefit their business directly. But for investing… Leave that for the big cats in their big fancy cat suits

Looking into this myself now. $4mil raise. It’s all spoken for but will take close to 3 years to burn. Small to medium regional banks offer decent rates with short term hold requirements (30-60) days

We generally use a high interest savings account. We’re planning on switching to T-Bills once we’re at a larger scale.

Inflation sucks but putting capital at risk is not what investors put their money in us to do

In my experience, the raise is released in tranches at specified milestones, or is essentially like a line of credit.

Unfortunately for early rounds, by the time the money hits the bank, the company needs the cash immediately to pay debts and make the big purchases and hires they need immediately. So the first few million can go very quickly

Your VCs want to see growth, so make a growth plan and hire into it.

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