Idle Fund Analysis of Swiggy & Zomato
A peak into the FY’19 Financials revealed massive volume of idle funds lying in both the companies (see below). Turns out, the problem of high levels of idle funds after mammoth investment rounds is fairly common in Startups receiving VC funding.
The big question: Where do they usually park these idle funds?
Big startups usually have dedicated treasury department with financial controllers and a CFO, who manage the idle funds generated out of big fat funding rounds.
Large VC houses funding small/medium sized startups either have a finance team that helps in fund management of all the portfolio’s startups or demand for appointing specialists to manage the cash.
In all cases, the investors put down the guidelines for investment of the idle funds. A reporting framework is usually put into place for continuous feedback.
Growth Plan of Mutual Funds, Bonds, Fixed deposits and Liquid funds (like commercial papers and Certificate of Deposits) are the most preferred investment assets for start-ups wanting to park their surplus cash. Firms can expect yields of around 7-9% from these assets.
The idle funds are invested only to protect them from cost of inflation (not with the objective of earning side income). [Parked investments generated an income of ₹169 Cr for Swiggy and ₹73 Cr for Zomato for FY 19-20.]
Investment Horizon: “If something is required in the next 30-60 days, we generally put that amount in liquid funds. And what is not required in the immediate 2-3 months, we put that in 6-month or 12-month FDs," said Sujayath Ali, co-founder of Voonik, a fashion app (Source: The Mint).
This article is a part of the July'20 edition of our Startup Newsletter. Here's the complete publication: