How Startups Should Allocate Surplus Cash Into T-Bills and Short-Term Investments

How to Invest Startup Cash Safely and Preserve Runway

After a successful fundraise, a startup’s bank account looks reassuring, but that cash is a depreciating asset, eroded by inflation every day it sits idle. An effective strategy for how to invest startup cash safely can extend your operational life, generate a modest return, and provide a buffer against unforeseen delays. This is not about speculative investing or chasing high yields. The goal is capital preservation, not yield generation. It is a defensive strategy to make your hard-won funding last as long as possible, focusing on safety, liquidity, and stability. For more context, see our hub on managing cash between rounds.

The Foundational Question: When to Start Managing Startup Cash

A formal treasury strategy is not a Day One priority. For early teams, the focus is rightly on product and market fit. However, the trigger for creating one is clear. Treasury management becomes relevant once a startup's cash balance exceeds six to nine months of its operational burn. Before this point, the complexity often outweighs the benefits.

If you are a pre-seed or seed-stage startup with under $2M, a high-yield savings account is typically sufficient. It provides better returns than a standard checking account with minimal operational overhead. Once your runway extends beyond nine months, or your cash balance grows significantly post-Series A, you have surplus funds that can be managed more actively. This is the inflection point where idle cash strategies become a crucial part of responsible financial stewardship.

Step 1: Determine How Much Startup Cash You Can Safely Invest

Before choosing any investment, you must determine exactly how much cash is safe to put to work. What founders find actually works is a simple, three-bucket framework to segregate cash based on its required liquidity and purpose.

• Bucket 1: Operating Cash. This bucket should contain three to six months of burn. This is your most liquid capital, held in a primary checking account to cover payroll, rent, and other immediate vendor obligations. This bucket is for predictable, near-term expenses, and the funds need to be instantly accessible.
• Bucket 2: Cash Buffer. This bucket should also contain three to six months of burn. It acts as a crucial reserve for unexpected expenses or a sudden dip in revenue. This cash can be held in a high-yield savings account where it is accessible within a few days but is psychologically separate from daily operating funds.
• Bucket 3: Investment Principal. This bucket contains any cash runway exceeding your first six to twelve months of operating needs. This is the only portion of your cash that should be considered for short-term investments. For a biotech or deeptech startup with a multi-year R&D timeline, this bucket can be substantial.

For example, consider a SaaS startup with a $150,000 monthly burn and $3 million in cash, which equals 20 months of runway.

• Bucket 1 (4 months): $600,000 in a checking account.
• Bucket 2 (4 months): $600,000 in a high-yield savings account.
• Bucket 3 (12 months): $1,800,000 is the principal available for a structured, low-risk investment strategy.

Step 2: Choose Safe Investments for Startups and Idle Cash

For Bucket 3, only the safest, most liquid short-term investment vehicles are appropriate. Equities and corporate bonds introduce principal risk that is unacceptable for runway capital. Your primary options for managing surplus funds are limited to a few core categories.

High-Yield Savings Accounts (HYSAs)

HYSAs are the simplest option and a great starting point. In the United States, they are FDIC-insured up to $250,000 per depositor, per institution. For startups with balances exceeding this, you can spread funds across multiple institutions to maximize coverage. In the UK, the equivalent protection is the Financial Services Compensation Scheme (FSCS), which protects up to £85,000 per person, per banking group. You can learn more about FSCS deposit protection for businesses.

U.S. Treasury Bills (T-Bills)

U.S. Treasury Bills, or T-Bills, are short-term debt instruments backed by the full faith and credit of the U.S. government, making them one of the safest investments globally. They mature in one year or less. For US-based companies, a key benefit is that yield from U.S. T-Bills is exempt from state and local taxes. For British companies, the equivalent instruments are UK Government Bonds, known as Gilts. You can find official information about buying marketable U.S. Treasury securities from TreasuryDirect.

Government Money Market Funds (MMFs)

Government Money Market Funds (MMFs) are mutual funds that invest in baskets of short-term government debt. A 'Government' MMF must invest over 99.5% of its assets in government securities, making them extremely low-risk. These funds aim to maintain a stable $1.00 net asset value (NAV), meaning a dollar in should remain a dollar out, plus interest. It is critical to distinguish these from Prime MMFs, which can hold riskier corporate debt and are less suitable for preserving startup runway.

Step 3: The Operational Playbook for Managing Surplus Funds

Implementing a treasury strategy involves a few straightforward operational steps, which are essential for good governance and clarity.

1. Draft an Investment Policy Statement (IPS). This document defines the rules of the game for your treasury. It should be approved by your board and outline your objectives, risk tolerance, and a specific list of approved investment types. The IPS protects the person managing the cash and aligns the entire company on the strategy.

IPS Template Snippet:
Objective: The primary objective of the company's cash management policy is the preservation of capital. The secondary objective is to maintain liquidity to meet operating needs. The tertiary objective is to generate a market-rate return on surplus funds.
Approved Investments: Funds may only be invested in (1) FDIC/FSCS-insured High-Yield Savings Accounts, (2) U.S. Treasury Bills with maturities of 12 months or less, and (3) Government Money Market Funds with a portfolio of at least 99.5% U.S. Treasury securities.

2. Set Up the Right Accounts. You can execute this strategy through modern treasury platforms like Brex or Mercury, which have built-in tools for these investments. Alternatively, you can open a corporate brokerage account at a traditional firm like Fidelity or Schwab.
3. Execute and Monitor the Strategy. For T-Bills, a common approach for managing liquidity is to build a ladder. This strategy is known as a 'T-Bill ladder'. Using the $1.8M principal from our SaaS example, you could invest $450,000 into T-Bills with 3, 6, 9, and 12-month maturities. As the 3-month bill matures, you reinvest it into a new 12-month bill, ensuring a portion of your principal becomes liquid every quarter.

Finally, for accounting purposes in both QuickBooks (US) and Xero (UK), investments like T-Bills and MMFs are typically recorded as 'short-term marketable securities' on the balance sheet under Current Assets. This classification is distinct from 'Cash and Cash Equivalents' and reflects their status under both US GAAP and FRS 102. For a technical definition, see the IAS 7 discussion of cash equivalents.

Key Principles for Preserving Startup Runway

For founders managing finance, a structured approach to startup cash management is a powerful tool. It transforms idle cash from a passive, depreciating asset into a stable, strategic one. Your first step is to assess your runway. If you have less than nine months of cash, a high-yield savings account is your best move, providing security without operational complexity.

If your runway exceeds nine months, implement the Three-Bucket Framework to clarify how much cash is truly available for investment. Next, create a formal Investment Policy Statement and get it approved by your board. This step is non-negotiable for good governance. When you invest, stick to the safest vehicles like U.S. T-Bills and Government Money Market Funds. By following this pragmatic playbook, you can effectively manage surplus funds and ensure your company is capitalized to weather delays and seize opportunities.

For broader guidance on this topic, visit the managing cash between rounds hub.

Frequently Asked Questions

Q: Are T-Bills and Government MMFs completely risk-free?
A: While considered among the safest investments, no instrument is entirely without risk. T-Bills have minimal credit risk but are subject to interest rate risk if you need to sell them before maturity. Government MMFs have extremely low risk, though historically, a few have "broken the buck," meaning their value fell below $1.00 per share.

Q: Do we need board approval to invest startup cash?
A: Yes. Your board should formally approve an Investment Policy Statement (IPS) before any surplus funds are invested. This establishes clear guidelines, defines risk tolerance, and ensures alignment between the management team and the board on the company's treasury strategy, which is a key part of corporate governance.

Q: Can a UK-based startup invest in US T-Bills?
A: Yes, a UK company can typically invest in US T-Bills through a corporate brokerage account. However, this introduces currency risk from fluctuations between GBP and USD. For this reason, most UK startups seeking government-backed security will opt for the UK equivalent, known as Gilts, to avoid currency exposure.

Q: What is the minimum investment for treasury bill options for startups?
A: The decision to invest is based on your runway, not a minimum dollar amount. The general rule is to only consider these short-term investment vehicles once you have over nine months of cash runway. Below that threshold, the operational effort often outweighs the modest returns, making a high-yield savings account a better choice.