A few thoughts on personal wealth creation for startup founders..

Every personal wealth thread says "invest, don't save"

Being a startup founder is not conducive to doing that. A singular focus on startup equity can set you back 5-7 years in personal wealth creation.

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1/ Startup Founders do not understand risk mitigation in their personal lives.

The startup ecosystem perpetuates a certain kind of toxic behavior around building and growing personal wealth.

Most founders actually end up building wealth for people around them. Not themselves

2/ Often, founders are poor, middle class, educated people who are giving up on a steady job, using up years of savings or are depending on a working spouse to start up.

(Yes, I'm a bit biased towards founders in their late 20s and 30s)

3/ These founders are risking their personal safety net and assets / resources to build the startup.

Along the way, they may not take a salary, they may work unhealthy hours to get the startup moving and eventually target raising money to build a team

And then they raise money.

4/ Seed stage founders are feted as the next big thing.... But often they are earning less than the execs they hire, and their 25-45% equity is worthless because its just a notional value till they hit prod mkt fit.

This stage can last 1-4 years and is financially stressful

5/ Even $8-14k monthly salary (SF / NY / similar) is a survival / existence salary to avoid worrying about monthly bills. Its not really building long term wealth of any kind.

People who say startup equity is wealth creation = LOL.

A $3M seed round gives you 18-24 months.

6/ Beyond prod mkt fit - lets say you're an exceptional operator, the market favors you and a winning team / growth spurt gets you $8M Series A.

Now your paycheck is $200-250k as founder / CEO - *slightly* more comfortable.

No secondary but maybe 10% of your money gets saved

7/ 80-85% of the time your startup will struggle. At the seed / post-seed stage its 2-4 years in, at the Series A its 3-5 years in.

Often post-Seed its because you're no longer a hot deal - VCs are amazing at hand-waving away 3-5X growth when the market has moved.

8/ At this point, your startup is in no-mans land. it neither dies nor scales exponentially.

Never mind those techcrunch funding stories or tweets from investors about frothy valuations. they are the exception, not the norm.

So now you're stuck in a treadmill going nowhere.

9/ Employees, and Investors are incentivised to perpetuate the myth of the "hyper focused founder" giving their days, nights and weekends to building a startup where your founder stock sits under a mountain of preferences, is being eroded by stock options, and dilution.

10/ But the truth is when the startup blows up *despite* your best efforts, you are the one left cleaning it up, solving issues and closing loose ends before winding down the company.

Nobody compromised on their wealth trajectory.. except the founders.

11/ Startups are not compatible with "passive income", "savings", "investments" or suchlike - most often wealth managers sniffing around after news of a big raise hits the blogs laud you for "foresight" and "real equity value" because they all just deal with the anecdotal wins.

12/ My advice?? Startups are great, but diversify your income streams, work on cashflow projects and treat yourself as an employee who has side hustles as well.

Unpopular take but when the shit hits the fan, you'll thank me.

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p.s. A lot of founders slid into DMs saying they see this pain too..

A few other ways to inject liquidity:
- No recourse loan on founder equity in LLC
- Banking fee 2-3% of raise in Sr Preferred / Cash
- Bonuses based on progress
- Fully funded 401ks for Founders

Founder Equity Loan:
Startup raises $10M on $40M post.
Founder owns 30% equity.
At preferred = $12M
At common ~ $4M
Founder parks equity in LLC
LLC contracts w/ bank during raise
Bank lends $1M on $4M to LLC w/o recourse to Founder
Founder pays Interest only for 10 yrs or IPO