#CRVPluggedIn: Cash Management Best Practices with Colin Anderson (Advisor to Airtable and the Former CFO of Palantir) and CRV General Partner Max Gazor

By Team CRV

In continuation of our #CRVPluggedIn Speaker Series, general partner Max Gazor hosted a Q&A session for nearly 60 attendees across the CRV family with Colin Anderson, the former CFO of Palantir and founding partner of Friends & Family Capital. Max and Colin’s discussion on cash management was a timely one given the last couple of weeks. Even though the full discussion was only accessible for members of the CRV family, we wanted to share an abbreviated version, and a few of the key learnings that came out of that session, with the broader CRV audience.

Colin is an advisor to Airtable (in 2015, CRV proudly led Airtable’s Series A and joined the board) and is someone Max has known for a decade. Back in 2009, Colin was recruited to Palantir amid the backdrop of the global financial crisis. While he was the CFO of Palantir, Colin helped scale the company’s balance sheet 10X to about a billion dollars in cash reserves making him the perfect person to chat with our early stage entrepreneurs about cash management best practices. He also recently crafted this post, Is My Cash Safe? 10 Principles That Helped Secure Palantir’s $1 Billion Cash Balance, which is well worth a read.

In his conversation with Max, Colin shared his best practices for cash management and touched upon:

• Why you should look for simplicity, not complexity.
• When you should make your first finance hire.
• What the future might hold for term sheet conditions.

Max: What do you consider best practices for small, medium and large sized companies when it comes to thinking about treasury?

Colin: There’s lots to cover here. Perhaps we start with some brief context, so folks know where my perspective was formed. Palantir had about 100 people total when I joined. Ultimately the finance team was me and a rock star staff accountant. We built up to 60 people globally just on finance and over 2,000 people at the company. I will highlight some key treasury concepts that are constant across these levels of scale that hopefully speak to companies across this spectrum.

First, let’s highlight keeping your cash safe and your business operating. It starts with diversification and having multiple banking partners. This includes more than just where you keep your cash and includes how you operationally run your business. In simple terms, how you enable money coming in and money going out from multiple banks. Many folks in the technology world saw a flavor of the impacts of getting this wrong with the fallout from SVB (Silicon Valley Bank).

Second, let’s flag the concept of segregation of duties. In vulgar terms, how do you make sure that not one person acting alone can steal all your money. While rare, you hear about it every once in a while, where someone was able to do something, they shouldn’t have been able to do. Always make sure that it takes two people to move any money. For any large amounts, it should probably take three people and probably includes a founder in the early days.

Third, let’s mention the human side. Make sure everyone on the team knows they are trusted (or they would not be on the team). Nevertheless, whenever you design structures to keep your cash safe, think “Okay, what if we have a bad actor internally or externally? What if a certain counterparty fails? What if a given person is a thief? What if the CEO is a thief? What if your treasurer is a thief?” Then play these questions through to determine how much money that bad actor could steal. Your answers will help inform the system design of thinking about your cash. Everyone must balance the “trust but verify” mindset.

Finally, when it comes to investment yield on your cash, the company you build is going to be a much bigger outcome than any incremental yield you can get on your cash. If your sales are going to grow 100, 200 or 300 percent this year, don’t risk that for a two percent pickup in yield, that doesn’t seem worth it. As you get bigger, you can start to ladder your investments, but in the early stages, you’re never going to make more on yield than you will building your business, so just set it right the first time and get back to building.

Max: Many younger companies don’t have a full-time finance person. What would you say are the key points, the milestones where you’d suggest that they first consider that? What is the next milestone when they need to expand that team and build out a treasury department?

Colin: There are a few classes of milestones to touch on briefly. Headcount, complexity and risk. By the time you get to roughly between 50 and 100 people, start thinking about hiring someone who thinks about finance. Whenever you raise a bunch of money is also a great time to re-evaluate. You are not going to sleep well at night if you don’t have someone watching all the money. If there’s more to lose, you should spend more time thinking about it. Even in the early days, get a few things right even before that first finance hire. Whether you’re using Mercury (CRV led Mercury’s Series A in July 2019 and currently sits on Mercury’s board), Brex, FRB (First Republic Bank) or a bank that is too big to fail, just spread your exposure and operations around. If you set it up the right way, you don’t have to think about it much after that.

Max: Board meetings tend to be about sales, marketing, engineering and so forth. Should it be that way or do you think it deserves a higher level of attention?

Colin: I think the market understanding of the answer shifted a lot in the last two weeks. I wouldn’t be surprised if investors start giving term sheets with mandates on your cash and investment policies. For example, it could look like, “Here’s a term sheet, and here’s what your cash policy has to include so we avoid an SVB-like crisis.” For founders and finance folks, your board meeting is the venue to raise the questions, “What should we invested in? Do we want to hold treasuries? What duration? Can we hold money market funds? Do we want to take some extra risk? Do we want to be in things like mortgage-backed securities or corporate debt? Should we chase yield?” Have that conversation. This is the time.

Wondering how to set your budding business up for financial success? Did Colin’s discussion with Max resonate with you? Comment below or use #CRVPluggedIn to share your favorite learning with us on Twitter, LinkedIn or Facebook.