Jul 10

What’s next after a successful startup exit that provides you with $1-$2 million

A million just isn’t what it used to be, and it is certainly not enough to retire on. However, used prudently, it can be the difference between living well and working for the ‘man’ as others have stated in this thread. If invested well, and timely, it can be a launch pad for much better opportunities. Indeed, cash earns a premium for its immediate availability when it meets a distressed seller.

It is my sad observation that few founders who sell their businesses have their bounty in tact five years after their exit. Generally speaking, CEOs spend all their time seeking to grow great businesses, and many become quite good at this. And unfortunately, their hubris or false attribution of assigning their progress to their good thinking is then extended unwisely to thinking that they should manage their own money. Not a wise decision. Memo to all founders exiting their businesses, long before your exit, get a qualified financial advisor, tax planner, and exit team around you, and interview several of them before settling on your best fit. This little piece of advice will help you save your likely one-time bounty and make it a lifetime aid to you and your heirs.

There are countless numbers of stories of MIS-managed wealth of the exiting founder. Here’s one of a sad tale from one of my dear friends; let’s call him GEORGE. He was a highly honest man, one that a handshake alone was enough to seal his bond. He was the technical expert on a new start-up in the radio phone aka cellular industry in the 1980s. He owned 10% of the shares of a fast growing company that successfully bid and won several sub major markets for cellular licensing operating cellular with the FCC approval. Five years into this business, his company was handed a handsome check from the industry leader to exit their business: around $135 million, and George gets an exit check for $13.5 million. Good news for George, and certainly a game changer we would all agree. The money changes his life, and guess what, in five years it was all gone. With a melody of execution errors including having insufficient prior tax planning, nor a qualified or strategic financial advisor to guide him, his bounty halved within a year; he next changed his life and spent money like the new Rich, first class everything, hundred dollar bills tossed here and there because he felt he had so much; in small things and large things he invested foolishly, invested with friends, scoundrels, and crooks who prey on the uneducated in such matters. He invested in businesses that he knew nothing about, and lost money learning about those pitfalls in those businesses. He invested in real estate apartment complexes only to have his partner swindle him out of his stake, as he did not know this business either. And in five years, he went from prince to proper. Four years prior he loaned me $4k when I needed a lift up, and now when his money was gone, in return of his favor to me, I hired him to work for me, as he was a good man and needed a lift up. I had known him through his ups and downs. Shameful really. Sadly, their are George’s all around.

So don’t be like George. Get an advisor on tax and wealth estate planning. Discipline yourself. Don’t change to many spending habits abruptly. Lock away funds that you can’t touch without great pain, and you may pass the five year hurdle that so many others have missed.

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Severin Sorensen, is a serial entrepreneur, headhunter, executive coach & Vistage Chair, with expert skill sets in senior-level executive recruiting and search, who finds great passion in igniting executive and company performance, high growth business models, growing management teams, & leveraging LEAN manufacturing processes for execution success.

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