“Exits are the best part of being an entrepreneur or investor. It’s when we get financially rewarded for all of the creativity, hard work, investment and risk we put into our companies.”
When I finally inked my buydown from the company I co-founded, it was a surreal feeling. Over the next 3 years, I was going to be bought down to a significant minority position, and we were going to achieve financial independence.
But, one question remained:
What to do with the money we made from our first sale?
The real temptation is to believe that you have the Midas touch and that, since you’ve done it once, you can do it again and again and again. You could potentially apply your Midas touch in a lot of ways: start another company – which is what I did, although more because it was a long-term goal of mine rather than to try to build a new scaled, salable business – play angel or VC investor in other companies, consult with startups and small businesses (which I am available to do as well), or even make yourself available as a CXO for hire.
Naturally, depending on the scale of your sale, you could pursue any or all of these strategies and still have plenty of money left over to satisfy all of your personal needs. Marc Andreessen did this when he sold Netscape, and he’s been an investor/advisor ever since. When a small fraction of your net worth will provide you with all of the income that you could ever need in your lifetime, you get the freedom to explore other paths – philanthropy and building new companies amongst them – without a pressing concern for ROI.
For those of us who get a sizeable chunk without achieving go buy a yacht money, we need to figure out what we should do with our earned windfall.
I’ve Sold My Company! Now What?
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Depending on what the buyout agreement was, you either have a pile of cash, a stream of checks, or a piece of the acquiring company. I’ll cover the first two situations, as the third situation has far too many variables to provide broad guidance; you can always contact me, and we can talk about your situation if you’re in that boat.
If you’re in one of the first two situations, here’s what I recommend.
Blow a little
Yup. You read that correctly. You won. Celebrate! After all, there’s little point to life if all you’re going to do is accumulate wealth until you die, never enjoying any of the fruits of your labor. You should take a little bit of time and do something that you truly enjoy doing. Spending it on stuff won’t get you as much pleasure as spending it on experiences, so spend a little on creating memories that you’ll always fondly look back upon.
Pay off debt
Now, I know that in “Should I Pay Down the Mortgage or Invest the Difference,” I covered the mathematical downside of putting everything you have into paying down the mortgage. The reason that there’s a downside to that approach is that you’re not allowing yourself to have the chance to participate in times when the market rises faster than the mortgage rate, creating incremental wealth that you would not have otherwise had if you had paid off the mortgage.
However, in this case, you’ve already achieved that goal. You won the game with your initial investment and got a great return on your capital. Although it’s probably not going to materially affect you, putting money into the market to double down could lead you, if it doesn’t succeed, to experience loss aversion later down the road. If the market wobbles, you’ll think about the time when you had more money, wish you had used it to pay off the mortgage, and then take more risk to try to get back to where you were.
Don’t set yourself up for that scenario. Get rid of the debt.
This is particularly true for consumer debt!
You may have hocked the credit card to fund your company, and you got lucky. Don’t press your luck twice.
Come up with a plan for the rest of the money
You may want to continue to grow your wealth, which is fine. You may want to get back into entrepreneurship. You may want to play angel investor or VC or private equity investor. You might want to try to make your never have to work again money.
Whatever your goals are, develop a plan so that you don’t fritter away what you’ve worked so hard to achieve.
I won’t tell you to put X% in angel investments or your follow-on business or Y% in the market.
Otherwise, you wouldn’t have any reason to hire me.
However, if you want to come up with a detailed plan for what to do now that the first sale is behind you, you can contact me for a complimentary 30 minute evaluation and discussion.
What did you do with the proceeds from the sale of your company? Let’s talk about it in the comments below!
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