An Entrepreneur’s Most Important Resources

4th in a 5-Part Series on the Building Blocks of a Successful Startup

Two and a half years into my new business as a professional angel investor, my friend and wealth manager, David, dropped in for a visit. We caught up on our families, golf games, businesses, and the community. It was great to see him, and I really enjoyed his company.

Then he dropped the bomb on me. He said, “If your net worth continues to drop at this rate, I’ll no longer be your contact at our firm. You’ll be working with one of my associates.”

My Plunging Net Worth

I said, “You’re telling me my net worth has declined to the point where I’m no longer worth your time. Am I hearing you right?”

Of course, I heard him right.

When I started my new business as a full-time angel investor, my plan for resources was simple. I would commit one-third of my liquid net worth to my angel investing business. I would keep the other two-thirds with my wealth manager. My objective was to build wealth. His objective was not to lose it.

This meeting was a wake-up call.

At the time, I was invested in three companies. One was doing well and approaching break-even, thus requiring no further funding. The other two were still eating cash. Plus I had the continuing needs of my family.

And now David was forcing me to face the reality that I was tapping into my remaining security stash. The pressure to make this angel investing business work was quickly building. It needed to make money.

Later I would discover Kathy, my wife, kept thinking, “When is Charlie going to wake up and get a job?”

She didn’t know I was thinking the same thing.

When money gets tight, the first thing I think about is my family. One of my life principles is the husband is primarily responsible for supporting the family by providing food, shelter, clothing, education, and safety. As I continued to finance the new business, this principle was threatened.

As I thought through what failing could mean to my family and me, I shuddered. I said to myself, “This is going to work, but it will take longer and require more money.”

Recommitting to the Vision

My original vision was investing in twenty startups in twenty years. I would be helping entrepreneurs succeed in their dreams and building wealth at the same time. It was all right there in front of me. I recommitted. This was going to work!

I took an inventory. My resources included the money but, more importantly, the people. As I thought through these relationships, I became even more confident in our future. We were all passionate about our work. We were serving markets which were buying. We were committed to each other’s success.

I then recalibrated and re-forecasted how much more money it would take to get to positive cash flow. I had the money. This forecasting exercise gave me added confidence.

An Entrepreneur’s Resources

When thinking through my resources, I came to realize the greatest and most abundant resource I had was hope. I saw the vision as a reality. It was right there in front of me.

The scarcest resources were my time and money. Investing time and money with the hope of achieving my vision is what I came to realize it means to be an entrepreneur.

Eventually, three and half years later, it started to work.

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3 thoughts on “An Entrepreneur’s Most Important Resources

  1. Charlie,

    Again – a timely post. My financial advisor just said that to me and wants to pass me off to an associate . However much I like and appreciate the firm – I realize their goals and insights differ much from my own – and so have been shifting monies to areas more in line with my values and beliefs.

    This post leads to something I’ve been wanting to ask – is it possible – and if so -how do I become an investor with your firm?

    Appreciatively,

    Denise

    • I am an angel investor and, as such, I am investing my own money. Angel investors don’t invest other people’s money, just their own. If you are interested in angel investing I am sure their are many angel groups in your area. Hope this helps.

  2. Hi Charlie, I enjoyed this post. Your allocation to angel investing was definitely larger than the typical 10% I hear, but you had the knowledge the make it work.

    Wealth managers would do well to learn some humility. As a group they underperform the S&P500 after fees – oftentimes by large amounts. They tend to pat themselves on the back for such underperformance as a necessary corollary of meeting the client’s “risk management parameters,” but the truth is that most of them know more about gathering assets than investing them.

    Buffett’s view is that HNWIs should simply invest their entire liquid net worth in an S&P500 index fund. And if you wanted the world’s greatest investor (and greatest risk manager) managing your money for less than 25 bps, you could have put your entire liquid net worth in Berkshire Hathaway in 2000 – it would have returned roughly 10% annualized since then.

    If I had a hypothetical 25M in net worth, I would divide it into 3 piles. I would keep 2M in cash and equivalents for family expenses. I would use 5M to create a portfolio of 100 angel investments of 50K each (I might mix up the exact numbers a bit). The remaining 18M I would invest in public equities on a selective basis. My target return on the cash would be 0% annualized. My target return on the angel portfolio would be 30% annualized. My target return on the public equity portfolio would be 20%. Note that most of my wealth building would be on the public equity side:

    Value after 10 years:
    Cash: $0
    Angel: 69M
    Public: 111M

    With inflation cranking along at a long-term average of 4%, wealth preservation is wealth erosion.