Securing a multimillion-dollar outside investment is a critical moment for any early-stage company. It’s the point where you realize you’re on the cusp of something big.

It’s also a time to ask: What should I do with this influx of cash?

Handle the funds well and you may stretch your runway and improve your company’s liquidity through shifting market conditions. Go without a plan and you could waste that opportunity. 

That’s why every startup and high-growth company should have a cash investment policy statement (cash IPS). It’s a staple for how large companies manage influxes of capital, and smaller organizations can take a page from that same playbook.

What is a cash IPS?

A cash IPS maps out your company’s short-, mid- and long-term investment objectives and the strategies for achieving them. It creates a framework for consistent decisions through all market conditions to help you meet your liquidity and investment goals for today and tomorrow.

You may want to create one before you start looking to raise capital. Investors want to know that you’ll maximize their money—not just stash it in a bank account collecting little to no interest. A cash IPS can professionalize your capital management, which may be attractive to would-be investors. Some investors may even require one before they extend funds.

One additional benefit is that your cash IPS can ensure that everyone in your organization is on the same page when it comes to managing your funds, from investing parameters to governance. Your finance, board and executive teams will all need a say in it.

Things to consider

Every company has its own set of challenges and priorities. You should develop a cash IPS that works for your company and strikes the proper balance among these factors:

• Capital preservation: Protecting a large portion of your cash investment will likely be a primary goal.
• Liquidity: You’ll want easy access to your cash—while avoiding fees, especially during times of market stress. 
• Yield/income: You may want to grow your principal to provide income. But this may come with increased volatility.
• Taxes: If tax management is a priority, you could consider investing in tax-free investments. 
• Benchmarks: Building a portfolio that beats similar investments could be a goal for some cash IPS plans.

Critical questions

Creating a cash IPS involves evaluating risk and return ratios to identify possible investments. Your options can range from short-term bonds to money market mutual funds, ETFs and more. Even in a low-rate environment, there are ways for startups to optimize cash.

Before setting up your cash IPS, consider these questions: 

• How much volatility and risk are you willing to tolerate to get a return on your cash investment?
• What types of investments will you allow? You also need to set up parameters for credit quality, maturity and diversification.
• What is your tolerance for investment losses and how will you treat them? Create guidelines for acceptable—and unacceptable—performance and how you benchmark it.
• Will you prohibit or focus investments in certain companies or sectors? If so, you might want to spell them out in the environmental, social and governance portion of your cash IPS. 

Updating your cash IPS

Over time, reassess your cash IPS to make sure it reflects changes in your business, regulations or the overall market.  You should include guidelines for how and when the plan will be updated and re-evaluated—and clearly define who is responsible for overseeing those updates. 

And you also need to decide if you will manage your policy and assets internally or externally. This typically depends on your resources and the policy that you’ve created.

Next Steps

J.P. Morgan Asset Management offers resources to learn more about creating a cash IPS. You can also reach out to your banker to start a conversation.