All In Twice
How much of your net worth is too much to bet on one thing, including yourself.
"After you're wealthy, never bet more than 25 percent of your net worth on any one thing, including yourself."
Meet Greg. He ran a financial services company for six years, sold it in 2005 for $6 million, and immediately after selling his business, started his next venture.
After I sold my company, I partnered with a friend who had recently exited his business, similar to mine, and we started our next business.
Coming off of both selling our businesses, we were maybe overconfident in our business abilities. Instead of investing just a portion of our net worths, we both went all in, investing nearly 100 percent of both our net worths into the new business.
The new company was a specialty finance business, and it ran on one key input: our ability to borrow very, very cheap money in the capital markets. Two years in, we had 30 employees, an office, good traction. Everything was going great until it wasn't.
In 2008, a switch flipped. The day Lehman closed, our revenue went to zero. Not down. Zero. The business made its profits on cheap capital, and when the capital markets shut down, so did the business. All told, about $10 million of our own money was invested in the business between the two of us. That was pretty much everything for both of us.
The mistake was never betting on ourselves. It was the size of the bet after we were already wealthy from the sale of our first businesses. Your first company is usually 100 percent of your net worth because it has to be: you have nothing, so you bet everything. We had taken that concentration risk once and won. The second time we had something to protect, and we bet like we still had nothing.
My rule now, the one I give every second-time founder I mentor: after you've won, never put more than 25 percent of your net worth into any one thing. Including you.
You should only go all in once. I did it twice, and the second time the table took it back.
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