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Waking up a billionaire – a sanity checklist

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This February, Whitney Wolfe Herd, a mother aged 31, woke up $1.5 billion richer after Bumble, her dating app business, floated its shares on Nasdaq. 

She had built the business in less than six years. On her journey, she won a sexual harassment case against Tinder, a company she co-founded; dealt with hate mail and brought up a young child.

And now she’s the latest in a growing number of young entrepreneurs who are making serious money fast. 

Patience is a virtue and I’m learning patience. It’s a tough lesson

While success and personal wealth are always a goal for entrepreneurs, this scale of success is stratospherically different. 

It pays to develop a plan, and a checklist, to retain your billionaire status and leverage it.

What next? 

On waking up a billionaire, you need to decide what to do next – should you set about preserving your wealth or expanding it?  The drive that got them this far means billionaires are unlikely to put their feet up and retire.  

Some entrepreneurs will choose to start again, either on their own, or by backing someone else. But they will need to realise that their “liquidity event” will almost never result in a clean break. Many billionaires remain actively involved in their original business, or shackled to corporate managements who never quite seem to live up to expectations…

It is important not to get distracted by all this. Just as it has taken years and masses of effort to get to this point, it is going to take a while to become accustomed to your wealth. The biggest gift which financial security gives is time –  time to get things right.   

Billionaires need to pause, relax and work out what they need to live, what they want to save, what they would like to invest and what they want to give away. Slowing down is never going to be easy. As Elon Musk once said: “Patience is a virtue and I’m learning patience. It’s a tough lesson.” 

But it repays to study. As Warren Buffett said:  “No matter how great the talents or efforts, some things just take time.  You can’t produce a baby in one month by getting nine women pregnant”  

Sally Tennant, Founding Partner, Acorn Capital Advisers

Anxiety about making the right decisions becomes less when decisions are made with those closest to you, whether they are business partners or family.  It is a sad fact that many billionaires end up wishing they had involved their children at an earlier stage. All too many end up surrounded by “yes men” fearful of losing their jobs and, hence, fearful of challenging a billionaire viewpoint. 

I suppose I would say this, but I am going to say it anyway: billionaires like you need to find a trusted adviser who is prepared to hold up a mirror to keep them grounded.   Someone who can produce investment and lifestyle options, discuss their performance targets, plus ways to set up a family office, if they so desire. 

And you don’t need Bumble to know the importance of the right network: great lawyers, sound accountants, helpful peers and a team of outstanding investors to develop new, and tailored structures.

Remember, before the IPO or sale, your wealth was locked in the business.  Suddenly, it is at your disposal almost overnight.

 Risk factors – a ten-point checklist:

  • The stress of not being in control.  Having been in charge of every aspect of your business, suddenly investment decisions are delegated to others. You will own financial assets which are new to you. This is intensely stressful when a financial crisis hits, and your paper net worth collapses 25 per cent. 
  • Investing money sensibly can make you cash poor.  You may well lack the cash flow to spend on yachts, planes and residences, all of which guzzle cash. You may also discover that the money you make on the stock market may not compare to returns from your business. 
  • We all know that we should never sign anything we do not understand.  This is doubly important for the “uber-rich” who have so much at stake.  Have an adviser check the small print of everything.  
  • It is too easy to overlook details, starting with your will. The chaos and stress it creates for your loved ones should you die intestate is massive. 
  • A family estate, like any business, needs managing.  This can cause frustration as your new family office team learns what matters to you. Unless you come from the financial world, it will take time for you to get up to speed on investment markets.  
  • Big mistakes happen when people believe their success makes them infallible. They need their trusted advisers and specialists to complement their own skillset. You need specialists to advise on investment decisions that lie outside your area of expertise.
  • The corrosive impact of inflation is easy to underestimate.   $1 billion under the mattress would be worth $544 million after 24 years assuming a (modest) 3% inflation rate. And don’t assume that CPI is the right measure of inflation – the underlying rate can be much higher.
     
  • The toxic effect of fees.  A $1 billion portfolio incurring fees of 0.75% growing at 6% annually after fees would, in 20 years, be worth $3.2 billion.  If the fees were reduced to 0.25%t the portfolio would end up $300 million larger, at $3.5 billion. 
  • FOMO can creep in.  Every banker and private equity specialist in town will be pitching to manage the newly acquired cash and invest it in the latest hot tech, biotech, cyber, data mining, Amazon/Apple/Google of tomorrow.  Until there is an investment strategy and the resources to do the due diligence, say no.  There will never be a shortage of opportunities further down the line.
  • Paralysis.  You will feel you face far too many decisions. It is all too easy to be overwhelmed. You need to delegate. And do not automatically default to reckless conservatism. You may feel safe with cash in your coffers, but it has offered a poor return to investors over the years.

Sally Tennant is the founding partner of London-based Acorn Capital Advisers

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