Go ahead and click this link and hit play. It definitely changes the read (warning: explicit).
I was recently asked to talk to a room full of founders and one of the questions was sorta taboo. Not something that we talk about often but a real-life issue that everyone in that room hoped to face. What happens if you do have a big win? How do you think about the life-changing money? How do you invest it?
Maybe it’s all the news of the upcoming IPO bonanza that prompted this question but if you’re in a spot where you have that upside, then you ought to at least have a plan. Now, I’m not a retail investment expert so don’t take this as any specific guidance. However, I did have the benefit of seeing how you successfully manage one of the largest endowments in my time at UTIMCO. I would argue that a large amount of money for a family starts to look like an endowment, planning for intra-generational wealth over long periods.
The quantum of money definitely matters. There is an entire spectrum of risk that lies between managing money to create wealth and managing money to stay wealthy, perhaps while living off the proceeds. One size does not fit all but I think the process does transfer: Understanding the goal of your investments, Understanding what risks you want to take, and Working with the right partner to help you execute.
I talked a little bit about this with that room full of founders and have continued thinking about it. I wanted to write a blog post so I reached out to my friend who comes from the endowment and foundation world and now manages HNW clients for a living to see what I was missing. I jokingly said that my best advice was to “Stop, Collaborate, and Listen”. His response was perfect. I’ve included it below in italics and inserted my own commentary below:
So it sounds like you are going with a hip hop themed post (Vanilla Ice lyrics)?
I would include:
1) I got to say it was a good day (It was a good day – Ice Cube)
Enjoy the win. Run a victory lap. Recognize the success for what it was – a combination of hard work, skill, and luck. Celebrate. But that’s in the past, what are you doing tomorrow?
That’s right, you had a big win and you likely still have some work to do closing that out. Take a little money and buy yourself (and your partner/spouse) a few nice things. Maybe you take X% and buy that boat, car, house, ranch (let’s dream big). I hope you also had the foresight to think about Pledge 1% before that Good Day.
2) We used to fuss when the landlord dissed us, no heat, wonder why Christmas missed us. Birthdays was the worst days, now we sip champagne when we thirst-ay. (Juicy – Notorious BIG)
Don’t forget where you came from.
This is good advice, even before you have that big win. Wealth can do more than change zip codes, it can also change relationships. Be prepared for some challenges and stay humble, that’s how you got the win.
3) I’m not a businessman, I’m a business man (Jay Z – We’ll go with “all the way up” even though it’s just a quote)
Post exit, you have now proven expertise in a specific area. Leverage that into a brand.
He brings up a good point, is there more that you can do with the attention your exit got you? Is there something else you want to work on in that sector? However, I come at this one a little differently.
Many entrepreneurs possess a lot of self-confidence (some call them crazy to start in the first place), don’t let that risk-taking approach automatically bleed into your investing. Have a business plan and make sure you understand what your risk tolerance is before you start scatter blasting angel investments across the universe.
4) Check Yo Self before you wreck yo self (Check Yo Self – Ice Cube)
Being successful at one thing, doesn’t mean you will be successful at everything. Know what you are good at, and recognize other people are better than you at other things. Get them on your team.
I’ve seen too many people assume that they are going to have continued success or another big win, and that usually leads to some very poor decision making. One challenge is thinking that you have more money than you’ll ever need. Too many people adopt a lifestyle and burn rate that eats up their capital. Or decide to pile money into their next start-up. Or worse, their friend’s start-up. Don’t be the pro athlete or the pop star that finds themselves in the bankruptcy court.
Now, let’s talk about how to get the right team in place and not make that mistake. I’m one of those people that have always been guilty of being cheap, too cheap in fact and it has come back to bite me many times. The more capital that you are investing, the more important it is that you get someone that has the right experience and is aligned with you. Paying for professional services is hard, just make sure you get the right team. More on that in a minute.
5) As I leave my competition, respirator style
Climb the ladder to success, escalator style (You’re Nobody (Til Somebody Kills You) – Notorious BIG)
Long term financial success is a methodical approach made up of repeatable wins managed in a risk controlled format. The only scorecard that matters is your own – define the game you are playing and stay focused on that game – don’t let the games of others cause you to lose focus on the outcome you determined matters for you.
Tushar brings up a good point. Successful investing isn’t about the big win, the most important thing is to execute your own plan and not take big losses. Erratic moves as an investor almost always come back to bite you, don’t let emotion drive your game. Instead, understand the risks you’re taking and keep your portfolio balanced.
6) Ain’t no half steppin (Ain’t No Half Steppin – Big Daddy Kane)
Exit was successful because you fully embraced the journey. Fully commit on the next thing if you want the same kind of success.
Many successful founders start to forget the grind and miss the commitment of the start-up world. Too often, they accidentally find themselves back in an operating role without the true passion for a project. We all know that start-ups aren’t a part-time job. Whatever you do with your time, make sure you’re committed to it.
7) Even the genius asks his questions (Me Against The World – Tupac & Outlawz)
Seek out experts to help you achieve your goals.
So back to that idea of getting the right team. I’m going to bash most retail brokers right here but I don’t think you can ever know what excellent looks like until you’ve seen the world of investment opportunities at the global institution level. It’s difficult to grow up in a retail-oriented financial institution or trust company and understand what the manager opportunity set looks like. No knock on that background or that specific person, they may be great, but the challenge is that they’ve never been exposed to the full menu. I have the same concern with affiliated bank platforms (Goldman, UBS, ML, etc). Plus, you have the underlying motivation to use that platform’s products (yuck). You also need to understand exactly what the rest of their practice looks like. Are you important? Do you resemble their other clients? And how, exactly, are they getting paid? Easy questions don’t always have simple answers, but the answers should at a minimum be transparent. This is where the relationship can take one of two turns – one that is a partnership or one that has more of a transactional type bent. Relationships that are partnership-based strive to deliver value to both parties over a long period of time; transactional based relationships often result in one party trying to extract value from the other party. Make sure you understand the incentives and motivations created by whatever arrangement or platform they might be using. Who owns their business? What happens if they leave? They are essentially your key-person. You get the idea. How are you aligned at every turn?
8) So here I go it’s my shot, Feet fail me not, (just capitalizing Feet as a reference to my Peleton screenname), this may be the only opportunity I got (Lose Yourself – Eminem)
Not sure what the lesson is here in this context, but can’t have a list like this without the G.O.A.T.
I think Tushar just wanted to include Eminem but I would use this to emphasize that you have some work to do when you hit the big win. The most important decision after your deal closes might be who you choose to be on your new team. Finding the right partner for your financial wealth is a big lift. These relationships are difficult to move with lots of friction from private investments, multiple accounts, and lots of shared historical knowledge between the parties. This is one hire that you want to get right (and not something that you wait on if you need to admit that you made a mistake). So get it right from the first shot!
Well, this turned out to be way more fun than I might have guessed. I hope you at least got a kick out of the quotes. Let’s hope that we have many of our founders and their teams that have these questions.
And if you’re looking for an advisor – I know one that I think is great. I’ll leave you with this quote from my pal – I love the intersection of hip hop and managing money…