Board expectations
Your board will expect you to manage your money according to the following criteria:
Capital Preservation: Invested in safe assets with little or no risk of losing money, like safe Money Market funds and/or US Treasuries.
100% of your funds should be insured by the US Government. This means every dollar must be FDIC/SIPC insured or in US Treasuries
How should I allocate funds?
This article by a16z is a great reference on how you should allocate your funds. The typical options are as follows in order to optimize for capital preservation as described above:
Checking accounts - an operating account
Money Market Funds - liquid within 5-7 days, but usually only insured up to $500K via SIPC insurance
US Treasuries - fixed for 1-3 months, fully backed by the government to an unlimited amount
Here is how you can calculate our recommended allocation:
Checking account funds
Calculate your current burn, multiply by 12 months to get the amount you should store in your checking account
Money Market
We recommend an additional 3-6 months of burn allocated here
US Treasuries
The remainder should go here
Here is an example of these calculations:
Company A has $2,000,000 in funds and a burn of $50K a month
Allocations should be as follows
Checking account = $50,000 x 12 = $600,000
Money market = $50,000 x 3 = $150,000
US Treasuries = $2,000,000 - $600,000 - $150,000 = $1,250,000