Over the past 6 months, the phrase ‘extend your runway’ has dominated the conversation in the startup universe. Investors have been instructing their portfolio company founders to “continue growing”, albeit with limited resources and for a longer period of time before their next funding round. Keeping an ear to the ground within the Venture Capital (VC) community has revealed that the current economic environment has made raising money significantly harder. Rising interest rates means the cost of cash is much more expensive, ousting the shotgun approach to fund raising that was prevalent throughout the pandemic and shifting towards an approach more akin to a marksman. Investors now want to see companies that can show profitability versus high growth. So, what are the key reasons that are driving CFOs to extend their runway and how can a company do this with the cash it has in reserve?
If you completed a funding round at the beginning of the 2022, it is not uncommon to assume that you would be looking to raise your next round in the next 18-24 months. However, your investors have told you that your cash must last at least 24-36 months before future fundraising conversations can begin. How does a company find an extra 6 -18 months of runway before fresh funding comes in when crippling inflation numbers are eating away at your buffer much faster than you had expected, staffing costs are increasing and the expansion plans into new jurisdictions have become that much more expensive?
Consensus among the VC funds reveals that profitability is the key metric they are interested in. The era of exponential growth at all costs has disappeared and the flight to quality is coming through, allowing companies with robust fundamentals and a strong product fit to remain in a favourable fund-raising position. Let’s not forget that the pandemic saturated the market with cash, resulting in an excess of dry powder and investors scratching their heads as to what their next play is. Ultimately, the capital will have to flow somewhere, but the odds are that it will find a home with companies that can show profitability and assure investors they have a product or service that people want.
In the world of corporate treasury, there is an unwritten law for CFOs to abide by – security, liquidity, yield. The possibility of a recession remains top of mind and if inflation remains higher than expected, this mantra will be tested like never before as central banks will be likely to continue raising interest rates. It goes without saying that companies have become even more risk averse with their liquidity, running to safer havens to ensure they protect the company as much as they can from any default scenarios.
A better way…
The road ahead is certainly challenging and it is essential that less cash leaves the balance sheet in the near future. Common tactics that will stand the test of time include cutting unnecessary costs (remove the company Netflix subscription!), engaging in detailed scenario planning and plugging revenue leaks. However, the rising interest rate environment has provided a golden opportunity for scaleups to enhance their buffers and go beyond familiar capital preservation methods. Numerous clients have mentioned that their instant access accounts are still offering close to 0% interest, coupled with sub-standard rates on term deposit or notice accounts. To us, this is neither just or necessary and is a major reason why TreasurySpring was created – to level the playing field for everyone!
Common questions that we get asked include:
Q) What do we get access to?
Through our platform, companies can access 450+ short term cash investment options across investment grade governments, leading global investment banks and high quality non-financial institutions. We offer options across 7 currencies including USD, GBP, EUR, CAD, AUD, ZAR and PLN.
Q) Right ok, but will I have to onboard with each counter-party before I deposit any funds, which could take at least 3 months?
Once upon a time this was the case, but not anymore! You will only ever complete one simple, digitised, free KYC/AML process, giving you access to all of our current and upcoming counterparties that we open relationships with, including the US Treasury, Goldman Sachs and Barclays, (this is not an exhaustive list) under one hood.
Q) What is the cost to use the platform?
The use of the platform is free of charge! You will never receive any unpaid notices in the mail or unbecoming charges via your account. All prices are net of fees and returns quoted on the platform are the exact amount that will be wired back to your account upon withdrawal.
CFO’s are quickly becoming a company’s secret weapon, re-strategising and exploring everything they can to squeeze the most out of the cash they have left. As the world is threatened with the possibility of the R word, the adage of security, liquidity, yield has never been more relevant. In one of life’s rare instances, you can have your cake and eat it, by increasing your security, maintaining your liquidity AND increasing your yield. Extending your runway can be a proactive cash generative action, by helping your cash work the hardest it has worked in the 21st century without you having to lift a finger, unless of course it’s to hit subscribe on an FTF!