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Thanks! In general we optimize for simple UX and would rather connect to your banking app than replace it. That does help keep feature demand down. But our goal is to grow along with our customers, communicate closely with them, and add the features they need as they scale.

You can probably go the other way and target consumers no? Or are they not equidistant?

Not publicly accessible, could you fix permissions?

This is really only an issue for startups with effectively zero revenue.

Your company gets classified as a PHC (and is subject to additional tax) if investment income, including interest, is more than 60% of its revenue. This isn't something most startups need to worry about if you have any revenue.

QSBS is based on intent, if the IRS thinks more than 80% of your assets are used for investment purposes and not for actively running your business. Basically it's so people don't use a small business tax exemption as a loophole for their investments. But the IRS absolutely considers idle cash in your company treasury as part of running your business, or else any startup that's raised money and didn't immediately spend it all would be considered an "investment vehicle," which they obviously don't.

Moreover, any of these potential issues would apply equally to a startup doing anything with their treasury, including putting it in a money market fund as most startups do. So we're not introducing any new tax risk. But of course, if any startup thinks these might be an issue for their business, they should talk to their tax advisor.

They said “short duration” not “short term”. The real risk is from spread duration rather than simple interest rate duration, and assuming they don’t lever up, that should be minimal.

The beauty of MBS floaters is that you’re relatively insensitive to prepayments because to a first approximation they’re always priced at par.

From an investor standpoint, as they say, you’re making maybe SOFR + 1.5%. That’s not a very sext return. But let’s say your banks repo desk is willing to finance the purchase at 5% down. Then you can lever up your investment 20x and now you’re a big shot making SOFR+30%, which is very sexy. But what’s that, when your lever like that, a tiny decline in price wipes out your entire stake (Welcome to 2008).

We're up-front with founders that Palus is meant for longer-term cash, not money you'll need on short notice. Even then, our liquidity timeframe is typically 1-2 days.

I'm curious about your experience dealing with your board. We haven't heard that issue from our customers yet, but thus far we mostly just target up to Series B (mainly since, once companies are taking venture debt, they're typically required to hold their money at specific banks).

What were you trying to invest in, and what did they push back on?

Super fair question haha. I'm gonna flip this question first because I think it perfectly frames the current landscape of startup/SMB treasury products

Say you (like many startups) use Mercury Treasury, Rho Treasury, Brex Treasury, etc. Most of these list somewhere exactly what funds they buy into. Why not just open a fidelity account and by them yourself?

The answer is pretty clearly ease of use. Easy to move money from your bank account (likely also with them) to their treasury, easy to set up rules like ("if my bank balance falls below $X then transfer $Y from treasury"), stuff like that

We provide all of these features too! We are not at all asking people to bank with us or spend the time/friction of actively managing their deposits

So if the ease-of-use is the same and the yields are roughly 40% more than the generic money market wrappers out there, we think it's a no-brainer

(EDIT: adding mention that I am OP's co-founder)

Do you mean this Crescent? https://www.getcrescent.com/

They're more of a traditional banking product. They seem to have a great high-yield checking account (3%), which is a great place to keep short-term cash. But for long-term holdings that you won't touch for months, a higher-yield product like Palus makes more sense, earning closer to 5%.

For what it's worth, we don't try to replace products like Crescent (or Mercury, Brex, etc.) at all. They're great for day-to-day banking. Instead we connect to your account there and optimize for really simple UX. We're working on setting up automatic sweep to/from Palus to make it even simpler.

That's fair. But to your point, the problem we see is that banks' treasury products take advantage of founders who (rightfully) don't want to think about their treasury yields.

That's why we designed Palus to be as simple as possible to use. If you check out our demo video, you'll see it's super straightforward. Setup takes <5 min and then you don't have to think about it anymore. We're also building out automatic sweep functionality, so then you REALLY won't have to think about it.

Given the significant increase in returns on a large treasury, we think it's worth the small amount of effort.

Similar to something like Jiko?

Fair! Growing user trust is definitely one of the biggest challenges building in this space.

For what it's worth, we don't hold users' funds ourselves; we use an SEC-regulated custodian (Alpaca) with the assets legally held in your name. And we're working on building transparency measures, like detailed views into your account's specific holdings of underlying assets with verifiable attestations, third-party auditing, and frankly any other measures that our customers would want us to.

I know putting company money into a new product requires a lot of trust. Like any product you're still exploring, I'd encourage you to start small, try us out, and grow your position over time as we earn your trust. And if it helps you trust us, I'd be happy to get on a Zoom call or meet IRL.

Good find- 2.85% is great for a business savings account.

All that is to say: businesses shouldn't treat all their cash the same way, especially when they have significant runway. The exact breakdown depends on the business, but typically you can think of it as three different buckets:

1) You have short-term cash, which you need immediately. This is where you'd use a checking account. This pays very close to 0% but you have immediate access. Most businesses might keep a few weeks' cash here.

2) You have short-term reserves, which is what you'd use in the next couple of months. This is where most companies might use a savings account (or even put it in a money market fund), where you know you can get the cash into your checking account in ~1 day. This pays between 2.5% and up to maybe 3.75%. Each business will structure their cash differently, and some might not even bother having this bucket.

3) Long term reserves, which you won't touch for months. This is where companies try to optimize yield, and where Palus is valuable. Even here, your money is safe, and in Palus's case can usually be in your checking account within a couple of days, but getting extra yield on long-term reserves can be super valuable.

Thanks! Yes we do. Sign up or book a call on our site and let's discuss.

Agency MBS holders who weren't levered or forced to sell never realized losses during the GFC. There were short term paper losses on some MBS, but it was overwhelmingly on long-duration fixed-rate MBS and incurred by people who held 5+ year duration bonds and had to sell early.

Short-duration floating-rate MBS, like the ones we use, were fine. And since regulations have gotten much stricter as a result of 2008, that was very much a worst-case scenario.

We specifically chose agency MBS because their yield and risk profile fits startup long-term cash needs very well (no credit risk by definition, stable NAV preventing principal risk, consistent premium over money market, and easy but non-instant liquidity). Essentially their safety reduces the need to diversify across bond types. It's also worth pointing out that MBS already are quite diversified, since each one is a pool of thousands of mortgages spread across different locations, borrowers, and property types.

We might offer non-MBS options in the future, if customers ask for it, but we're not there yet.

Tons of schlep blindness here for sure. That's the only plausible explanation for why existing treasury products have made it this far

I'd say your long-term bets are earning interest... it's just going to the house and not to you

These are good points.

On the government backing: it's a fair nuance to point out. In a technical sense, Ginnie Mae has the explicit full faith and credit guarantee while Fannie/Freddie are GSEs with an implicit one (and are under government conservatorship). But in practice, the distinction isn't really meaningful. In practice, the federal government has always guaranteed these loans (even in 2008, when they were under the most stress they've ever been, and there have been significant reforms as a result). There's no reason to think they'll ever stop. The scenario where the GSE guarantee fails is essentially the collapse of the US economy well beyond anything we saw in 2008 (in which case frankly we all have much bigger problems).

On the risks you mentioned: 1) Principal loss: given the guarantees re credit risk, and the fact that we use short-duration floating rate instruments to protect against price risk, this shouldn't really be a concern. 2) On spread risk: there can be slight variation in spread, mostly affecting yields; this is why we say "4.5-5%" yields given there's some variability in that range (but all far above money market). 3) On liquidity: agency MBS is the second most liquid fixed-income market in the world after Treasuries. In nearly all circumstances, liquidity is 1-2 business days. This product is really meant for long-term cash reserves; our idea is that companies should stop treating 6+ month cash the same as next month's payroll.

Ultimately we encourage founders to do their own research and understand what they're doing with their money. We wouldn't ask anyone to put short-term cash in a MBS portfolio (in the future we'll probably offer some other options too). But for long-term cash they're sitting on, the extra yield can be meaningful to the business: on $5M, it's an extra $50k-75k per year, or half a junior engineer's salary. Given the minimal risk, I think it's worthwhile for a lot of companies.

The 4.5-5% yields we quote are net of expense ratio. Then our cut is 0.25%, comparable to the 0.15% to 0.6% charged by Mercury, Rho, etc. And we're working on bringing that expense ratio down as we scale.

Functionally speaking, short-duration floating-rate agency MBS trade at such a stable NAV that they're perfectly sufficient for long-term cash, and many large companies trade these.

MBSF is complex in the way that basically any fund is complex, but the strategy it employs is actually quite simple since it only trades a single asset class. Yes the expense ratio is higher than some other funds but the additional yields more than make up for it.

ICSH and SGOV are great funds too, and make sense for shorter-term cash, but they pay significantly less than we do.

Broadly speaking, our product is meant for exactly the kind of cash strategy you're thinking about: multiple buckets with duration spread accordingly. At the moment, our platform is just for the long-term bucket. But in the future, we might add additional shorter-term buckets too (maybe even with ICSH or SGOV).

Not the OP but curious why you think so?

If this gives an extra 1% per se, I imagine that is more worth it to a company fresh off a large fundraise with a ton of cash in the bank.

Startups otherwise are lean and won't hold enough cash to get a meaningful return from the 1%.

Yep! Fill out the signup on our website and we'll be in touch

No haha they are not exempt. But neither are money market funds, which are currently the most popular choice for startups and SMBs

STRC is much riskier (I'm having trouble imagining any scenario where it does NOT default.)

STRC has only been around for less than a year. I don't know too much about what assets it holds (and maybe it's worth me looking into it), but those kinds of returns are generally a sign that you're taking on a lot more risk than you think (even if it hasn't had a major price decrease yet).

We're competing against long-term cash held in a money-market fund (an instrument optimized for short-term use with same-day liquidity) earning 3.5%. In that context our yields definitely are competitive.

I googled it. That is Strategy? Ponzi Saylor's company. Ooook.

Why not buy Celsius (1) instead, even better yields ;)

(1) https://en.wikipedia.org/wiki/Celsius_Network

Hey Andrew thanks for the feedback

We know that the main barrier to switching is just time and ease of use, so we deliberately built this to have the same operational burden as using your current treasury product

Palus links straight to your bank account just like Mercury, and we'll also allow you to set up rules for moving money around!

That said, if there's any other features that really keep people tied to their current products we want to know about it. Our goal here is to build something that actually cares about the fact that you're a startup with limited time to care about yields, and not just throw your money in a generic fund and forget you exist

The bond funds offered in existing startup treasury products aren't suited for startups' long-term cash reserves. They either offer low-yield money market funds, or bond funds that aren't well suited for capital preservation on the order of months the way startups operate (see here for an example of VFSTX, the fund offered by one of the leading startup treasury products today: https://totalrealreturns.com/n/USDOLLAR,VFSTX?start=2021-01-...)

Our goal is to make sophisticated treasury management easy for startups. With Palus, they don't need to manage a brokerage account, or handle treasury ladders, or anything like that.

Lucky for both of us, the value prop isn't just "we are offering better interest rates on the same instruments because we gave up our cut"

It's actually "we found a way better set of instruments for long-term cash that allow us to offer better interest rates without giving up the cut altogether"

That being said, we do think the current treasury products can be a little predatory with their rates. For example, Rho charges a variable rate that peaks at 0.6% for any deposit of $2M or less. We think that's crazy so our margin is a flat 0.25%, no asterisks or fine print.

The reason for the current framing is that pretty much every founder we have spoken to hears "high yield" and then instantly asks about safety. But like you said, at this spread it isn't risky

But yeah, any time you put those two words together it inspires skepticism, which is totally understandable. I think this comes down to a lack of education, most people think the only two dimensions in this space are yield vs risk when in reality there is a third one (liquidity) that is balancing out the spread

Super open to suggestions for alternate framing. Maybe something like "optimizing" yields?

Haha just wait until we add a chatbot in the corner of your window that's constantly pinging you to deposit more money

Name suggestions are appreciated