sam_palus

I'd totally agree, if it took 1-2 weeks to onboard and manage! But it really does just take a few minutes.

And it'll get even easier once we add our auto-sweep features in the next few weeks, and you'll be able to just set it up once and truly never have to touch it again.

We certainly don't claim that Palus will transform your startup. But it's a worthwhile piece of very low-hanging fruit.

Excited to have you on board!

We totally agree! And that's why we specifically designed Palus to be as easy to use as possible. It's a one-time setup that takes five minutes. We optimized our UX for founders to spend as little time using it as possible, so they can focus on finding PMF instead.

Even for a Series A company, putting $5M into Palus should yield an extra $50k-75k per year, just for having your money sit in a smarter place. Put another way, it should cover six months of a junior engineer's salary for free.

For five minutes of setup, we think most founders will find it worthwhile.

Even for a Series A company, putting $5M into Palus yields them an extra $50k-75k per year, just for letting their money sit in a smarter place. It's a five-minute optimization which essentially gets you half a junior engineer's annual salary for free.

This is actually something we've done quite a bit of research into developing! What you're describing is very similar to repo lending in institutional finance.

We ultimately decided against implementing it for our initial product, since we're specifically focused on companies' long-term cash reserves which by definition shouldn't require immediate liquidity. But in the future, if our customers want it, it's definitely something we can build.

Agreed, QSBS is too valuable to be cavalier about.

The active business asset test is about "intent and substance" and not balance sheet line items. I think it's very clear in this case that you'd be using it as a cash equivalent, since floating-rate agency MBS have a comparable risk profile to money market holdings (short duration, government-backed, highly liquid). And economically they're serving the same function: parking working capital safely until your business needs it. And frankly, I think accessing those assets through a treasury management platform, rather than a brokerage account, helps establish intent and substance.

That's my view on it at least, and I know many companies use these assets for long-term cash without issue. But I'm not a tax expert.

I do really appreciate you bringing this up though, and I'll reach out to our tax lawyer to get a proper written opinion we can share with our customers. Of course it's not a replacement for getting your own tax advice, but I think it'll be helpful regardless.

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.

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?

I definitely see your point. Our thesis with the MBS product, in finance terms, is that most startups can afford to take on a bit more liquidity risk on their long-term cash (on the order of a couple of days) to get significantly better yields without taking on credit or price risk on their principal.

We've had discussions about offering products in the future with higher yields that carry more risk. Most founders we've talked to are very risk-averse on their company treasury, but if our users tell us they want access to different instruments with different risk profiles, we're happy to meet them where they are.

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.

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.