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Ask HN: How Much Money is Enough... What's your Number?
It would be interesting to hear your specific financial goals, such as: "I would sell my startup if the net proceeds of the sale would exceed n." I'm more interested, however, in knowing what factors you considered to come up with your number.
I am asking because I run a profitable internet business that has doubled each of the last three years; our metrics indicate that we can maintain that growth rate for the foreseeable future. As with any business, there are major risks but the likelihood of them actually threatening us is relatively low; unfortunately, precisely quantifying the risks is impossible.
Since a significant chunk of my net worth is tied up in the business, I worry that a "rogue wave" could endanger our prospects. We have been approached multiple times by serious acquirers offering favorable terms and a 5x revenue multiple; so far, have I rejected their offers. We have no outside investors so the decision to sell would be entirely mine.
Since the M&A market is beginning to show signs of life again, I am considering a sale. The question is, how does one decide when to step off the train, and take a huge amount of risk off of the table? Thanks!
- timdellinger 17y agoA few thoughts: 1. The rule of thumb I've always heard is that $2 million in the bank lets you live off the interest with a salary of $50k/year. Which is all that anyone really needs. $4 million for $100k/year, etc. These are the standard "I'm set for life" numbers, as long as you don't do silly things with your money. Which many many people do (trust fund kids, professional athletes). 2. Just because you can retire doesn't mean that you're going to retire. One of the ways I like to think about it is that an extra $50k/year from my investments can turn a $20k/year job into a $70k/year job. So now all of the sudden I can take all kinds of jobs that I wouldn't have considered doing in the past due to low salary. Plus you don't need the job, so you can walk away from stressful or unpleasant situations much more easily. 3. Personally, I think the remorse that I would feel if I had lost it all due a rogue wave would outweigh the remorse that I'd feel if I had sold the business "too early" and missed out on doubling my money.
- elsewhen 17y agoi greatly appreciate your point #3.. thank you.
- greendestiny 17y agoI'd think the exact specifics matter a lot with #3. Just how likely is it that something can swamp you? Do you have a lot left you want to do with this company or are you just waiting for growth? Because you sound a little passive about it which is probably dangerous.
- elsewhen 17y agoI mentioned in the post that the risks are low, but difficult to precisely quantify. I think there were lots of businesses in the dot-com boom that did not foresee the crash coming. I worry that some similar crash (or something else) could be around the corner, even though its not clear now. As far as growing the company... we are more aggressive now than ever. Since I have already taken a good portion of money out of the company, I feel safe to plow a larger portion back into growth. In our space, to keep doubling requires constant and accelerating ramping-up.
- greendestiny 17y agoI can see why it would be very hard to get out when you're growing so aggressively. I guess I'd just say the fantasy startups of the future are blessedly free of complications and unpleasant work and that isn't going to be the reality.
- caffeine 17y agoI think you really need to think about what you actually want to do with your time. In other words - if running and growing this company is more fun/exciting than not doing so, then do it and take the associated financial risk. If you're sick of running the business, then get out. Once you have a feel for who you want to be in the next couple years (i.e. harried entrepreneur growing 200% vs. just minted), it'll be much easier for you to decide what you want to have. (In particular, if you have a good idea for your next company, then exit this one) My F-U-but-keep-working-for-money: 5 mm My F-U--seriously-F-U: 10 mm The difference: a large, aging family whose health I will wind up responsible for. An extra 5 mm goes a long way toward getting live-in nurses, drivers and bribes for hospital managers (this is not the US).
- baddox 17y agoI think your employer would find you to be a rather poor employee in that #2 situation.
- nkurz 17y agoNo, I don't think so. Or at least it depends on the job. As an employer, I know that you are working there because you love what you are doing and don't want to be doing anything else. I don't have to worry that you'll move along as soon as someone offers you another $1.50 an hour. And in a startup, I know that if we hit a rough patch we can probably come up with a way to trade you equity for salary. For creative positions, I'd view financial independence as a positive.
- swombat 17y agoOn the other hand, it means that you can be more positively disruptive when faced with a situation where someone else might not do anything (because they're afraid of losing their job). This can be a plus as well as a minus.
- bowman 17y agoWho says the OP would be an employee? A lot of fun though low paying jobs involve owning your own shop/bar. A second hand bookshop. A motorbike shop. A cafe doing X for the Y demographic etc.
- nopassrecover 17y agoBear in mind that by living off the interest you are actually spending the amount that you receive to offset the devaluation of your savings. This is to say that while you might still have $2 million in 12 years time, it might only be equivalent to $1 million by current standards and that $50k per year will be more like $25k by today's standards.
- hnal943 17y agoThat assumes inflation will more than double its current rate of roughly 3% to around 6.5%. That's not impossible, (especially with the way the current administration is spending money) but it would represent a major change of events from the current environment.
- hikari17 17y agoI would like to look back on the sale of our startup with the feeling that the buyer and I could sit on a entrepreneurial conference panel together and talk in a warm, genuine way about having come to terms that were fair to both of us. So for me, "n" would depend to some extent on who the acquirer was (and where I thought they could take "our" business.) That said, I'd find it almost impossible to conceal my glee and satisfaction with anything north of $2M.
- steve_mobs 17y ago10 million. i can easily get a 10% return investing every year and 10% return on 10 million is more than enough to live on every year.
- jimboyoungblood 17y agothat's the funniest thing i've read in a long time.
- akd 17y agoIf you can easily get a 10% return on investing every year, you can make MUCH more than $10 million by getting a job at a hedge fund :)
- astrec 17y agoDo you mean 10% a year over 5 years, or 10% year on year?
- uptown 17y agoI had no idea Madoff would get Internet access from prison.
- jimboyoungblood 17y agoIf everything you said is true (profitable, doubling each year, no end in sight), I think you'd be crazy to sell in the current market. Since the goal is to reduce risk, why not just sell a partial stake in your company? With interest from multiple buyers, you can probably get a lot more than the 5x if you make them bid against one another. But of course, if the price is right, just sell. If I were in your shoes, that threshold would be around $50MM.
- akd 17y agoThe very fact that this question has been asked demonstrates the reason that the biggest companies are founded by people who are truly "not in it for the money." Most of the numbers here are under $10 million. Bill Gates, Steve Jobs, Michael Dell, Mark Zuckerberg, could have all sold their companies very early and had plenty of F-U money with a few extra Lamborghinis to boot. But it was the vision of creating something bigger than money that kept them going at it, even though it could all fall apart, and that's why we have the amazing things we do today.
- elsewhen 17y agoThanks for your comments, and I appreciate your point, but I think that it is a little too simplistic. There have been many great entrepreneurs who sold a company and then used their newfound position to go on to create even better and more important companies. Tony Hsieh created Link Exchange in the 90s, then he sold it to Microsoft, and then turned around and created Zappos (which he recently sold to Amazon). The paypal guys sold to eBay, and took their money to start all sorts of new ventures (off the top of my head, I can think of Elon Musk (Tesla, SpaceX), Max Levchin (Slide), Reid Hoffman (LinkedIn) Is your suggestion that they should not have sold PayPal? Were they just "in it for the money?" An entrepreneur who sells and has enough money not to worry, can continue to start businesses ad infinitum which puts them in a potentially better position to create "something bigger than money." If Elon Musk had stayed at PayPal, I doubt he would have started a satellite launching company as well as Tesla Motors!
- staunch 17y ago$4 million after taxes is minimum I'd sell for in that position. I'd aim for $12 million after taxes, if possible. Anything over that is gravy and not worth taken much risk for.
- jacquesm 17y agoRisk mitigation is usually done best by splitting your bet. In other words, sell a part of your business to limit your exposure, keep the rest. If in the future it goes down the tubes completely you will not have lost all. If it continues to go up split your risk again. And so on.
- pclark 17y ago$300M.
- jodrellblank 17y agoThe question might say "what's your number", but the number isn't the main focus, the thinking around it is. Why $300M? and not $200M or $400M?
- pclark 17y agooh, $300M is enough to become a competent angel investor, secure family future and to have enough to do anything. When you start looking at yachts and houses, you'll soon spend $15M. The investing is the bit that really interests me, you'd be able to properly do seed investing and "give something back" to the community. Really be disruptive. Similar to the founder of Ubuntu.
- jodrellblank 17y agoIt's not enough to do anything, you're still limited to things a wealthy private investor could do - but a state can still do a lot more. In the late 1700s, John 'Iron Mad' Wilkinson, British industrialist and inventor of the first iron boat offered to pay off the entire national debt. With a mere $500M you couldn't build a motorway of any significance, you couldn't buy so much as a medium sized town, you'd struggle to build the world's tallest building unless it was just a spike, you couldn't jump start a large company such as an Intel/AMD competitor or an Amazon competitor or create license and market a new cellphone unless you had a very low cost startup/bootstrap approach. You couldn't amass a world class art collection or establish an underwater city, fund a significant amount of anti-aging research or push a bill through congress or have your own Formula 1 team or brute force your way to the moon with some Flanderys domes, some GM plants and a seed terraforming plan. In short, you could live a hedonistic life, become famous, seed invest, philanthrophise, give something back, make local successes, but you couldn't "really be disruptive" on the world scale.
- keanemachine 17y agoA great resource for working out the (monthly) income to do what you want with your life is at Tim Ferriss' blog (author of the Four Hour Work Week). http://www.fourhourworkweek.com/blog/lifestyle-costing/ http://www.fourhourworkweek.com/blog/lifestyle-costing/ I've read the book and I dont't agree with everything he says, but I found this particular part really interesting. Tim advocates writing down all the things you want to do (cars, holidays, house(s), travel, etc),working out how much all these will cost per month; then mulltiplying that figure by 1.3 to give yourself a nice 'cushion'. According to him, there's no point in 'a million' or 'two million' or any other arbitary figure in the bank, most people don't actually want to be millionaires per se, it's the 5-star lifestyle that is attractive to them. The monthly expense calculator is at: http://www.fourhourworkweek.com/blog/expense-calculator/ http://www.fourhourworkweek.com/blog/expense-calculator/ Obviously you need to work out what you want from your life fist, more info on that if you read the first link. Hopefully this will help you make a more informaed decision. p.s. I'm not affiliated to Mr. Ferriss in any way, I've just finished his book and there's some great advice in there, you may wish to consider getting a copy.
- petervandijck 17y agoThe idea that you could foresee what you want in life and that what you need to reach that is money is astonishingly naive :)
- jodrellblank 17y agoHow far is your forseeable future? Doubling is exponential growth and if you change nothing it will significantly slow at some point - how far away is that point in your predictions? How long have you put time and effort into the company? A year? Ten? Optimistically, what would you have earned in this time otherwise and how does the sale amount compare? Would you personally be tied up in the sale - e.g. you have to work for the purchaser for 2 years? Does that matter to you? If it's been doubling every year for three years, imagine yourself asking this question on HN last year, having doubled for two years, considering selling for half the price. Looking back, would you advise yourself to have sold or held? Do you have anything else pressingly interesting or important to work on, or other plans for what to do with yourself post sale?
- alaskamiller 17y agoEnough for a house, a car, and some leftover to take care of my family. Everything after that I think is just greed. With those needs taken care of you have all the time in the world to work on another hit.
- bmelton 17y agoExcept that you have to buy gas, pay property taxes, eat, drink and pay for entertainment. I get your point, for sure, but surely you want something in the bank to either help fund your next gig, or to buy yourself more time in case it takes a few more tries than 1?
- elsewhen 17y agoReally? So if you were working on a successful startup, you would sell right when you reached the point that the net proceeds of a sale reached say, $1M?
- lyime 17y agoGreed is relative.
- cunard-n 17y agoCongratulations, elsewhen. Good luck.
- jonmc12 17y agoAlso known as the 'F-U Number'. Ask yourself how much you need to live the rest of your life the way you want. For me, I don't need much in the way of luxuries, but would want enough money to secure my own interests regardless of whats going on around me (ie a war or something).
- diiq 17y agoIs it Cryptonomicon that taks about keeping a spreadsheet that actively calculates your FU number based on the current cost of living? If I can live comfortably on the interest, I'll take it. No need to pry me out of my office chair.
- swolchok 17y agoYes, but they used the term "fuck-you money". Excerpt: http://www.cryptonomicon.com/text.html http://www.cryptonomicon.com/text.html
- elsewhen 17y agoThat is exactly how I have approached this issue so far... I researched all the different things that rich people spend their money on (and most of them really bore me). I'd like a nice house and a workshop, and some extra for non-extravagant travel. None of those cost too much money, but there is one other thing on the list: starting bigger ventures without requiring outside investors. The more money I have, the more ambitious my future endeavors can be.
- sachinag 17y agoWait, why do bigger ventures without requiring outside investors? If you want to do bigger things, you'll have to put more in, and you're going to end up in a situation where the same percentage of your net worth is tied up. Instead, if you have a profitable exit, it will be much easier for you to raise more with giving up less from professional investors for your next, bigger project. Then you'll be able to do something big and awesome, maintain control, and still have more cash in the bank.
- weaksauce 17y agoI would probably sell under one of the following scenarios: 1. When you are bored of what you are working on and a sale would net you enough money to live for enough time to startup one or more new venture(s) that you are interested in. 2. Not bored of the venture but think that in the immediate future your business might come under attack by an incumbent and you are not agile enough to fend off said attack. Note: those are just two that I would sell off under. I am sure there are a few more that would be a good time to sell but I am not able to conjure them right now. I would also wager that you should be able to get a fair sale price given the growth metrics you are using.(As long as they are not too cooked.)
- mattmaroon 17y agoIs there any way to continue on but also take cash off of the table? Maybe sell half of the business to alleviate risk but still have some shot at the upside in the event none of the minor risks pan out.
- elsewhen 17y agoI have already taken large dividends from the corporation and socked that money away, but despite that, more than 80% of my net worth is still tied up in the business itself. So, I still have a lot of risk concentrated in a single asset.
- oldgregg 17y agoIf you're asking the question then it's quite possible that no amount will ever be enough.
- elsewhen 17y agoI really worry about that. I have already taken a lot off the table, and am very comfortable even though I live way below my means. The dilemma is when to cash in when the business keeps growing... Its difficult to decide the right time. I met the founder of a website that sold to Demand Media, that has since blown up into a large property. Of course, Demand probably grew it faster than the founder could have on his own, but nonetheless, the founder was noticeably distressed that he sold too early.
- evgen 17y agoAs a counter-point, I have several friends who had nice companies and outstanding offers in the late 90s who could have sold but did not do so because they told themselves that they were going to make the company _huge_ and better offers were always going to come knocking (because for the previous couple years they always did.) When the bubble popped they were left holding nothing and a couple of them are still obsessed with the could'a, should'a, why-didn't-I moment that passed them by. If you succeed once it will be easier to do again and you will not feel the same pressure to cash out because you will always know that if the current venture blows up you have a comfortable life banked away. Consider the idea that exiting now give you the freedom to exit whenever you want on future ventures by just walking away and trying something else...
- huhtenberg 17y agoAs per Donald Trump - $12 million will get you comfortably set for the rest of your life and provide with lots of spare cash to do stuff that you can't even think of now. I.e. aim for twelve ;-)
- trafficlight 17y agoDon't listen to anything Donald Trump says. He doesn't live in reality.
- quizbiz 17y agoHow much money is it worth to you? Consider the value.
- Jono 17y agoI graduated and was worried, so I worked one full time job and five part time jobs - 80 hours a week. Then I taught myself Alias and went to work in Sydney as a consultant and part time lecturer. Then I got a job in Hong Kong - on half the money and worked as a government consultant. I was then hired by an Hong Kong company run by Indians selling sports shoes to Poland and Russia. I then worked in the core team for innovation for Philips CE for six years. I never had much money I have little now. I will never be an employee again and I am a partner in two startups now. Who knows what will happen but I suggest for happiness and "value" You spend your life (your time) in those places that will grant maximum experience
- elsewhen 17y agoI think the offers I have received in the past were fairly valued, but it is just hard to sell when I am relatively sure that we can double again in the next 12 months. Our revenues have been very stable and predictable, so it really comes down to deciding when to pull the trigger.
- quizbiz 17y agoMay I ask what exactly the business is? I would love to hear more about your story.
- vaksel 17y agoFor me personally, the goal is close to $4 million after taxes etc. That's a large enough number to be able to live off interest. So you can do nothing while you think about your next idea.
- albertsun 17y agoWhat's the investment strategy for the $4 million?
- gwern 17y agoIf he wants that much, it sounds like he's going with a conservative investment plan. At a guess, laddered CDs or municipal bonds.
- bkrausz 17y agoWow, $4m is what you'd need to keep your standard of living? My father and I always said $2m is the magic number. We also assume you can pull 5% APR, which seams realistic but I honestly don't know for sure.
- jhancock 17y ago5% may not be that realistic these days when you have to hedge for inflation as well.
- deleted 17y ago[deleted]
- nostrademons 17y agoSo did we, in the U.S, but we also had interest rates that are about as close to zero as you can get. Interest rates now are going up, but so are inflation expectations. And I'd bet that inflation will go up faster than interest rates, which sucks for debtholders.
- 17y ago
- dennisgorelik 17y agoThe sale should be done if it is mutually beneficial. For example, if the buyer has skills or technology to scale the business up faster than original founder -- then the price might be set in such a way that it would be better for both buyer to buy and for the founder to sell. Another good reason -- if founder is exhausted. If the reason is just to eliminate risk, then it might make sense to sell part of the business or simply invest part of the profit into something else.
- mjgoins 17y agoBiggie was right. Mo' money, mo' problems. I'm sticking with a slightly below-average income, and living simply. Happiness is elusive, and in no way linked to money. (I think I might be the most un-YCHN person on YCHN)
- darnoc 17y agoHear, hear. I live the Bay Area, am in my 20s, have a ton of programming experience and also a strong math background. The temptation to play startup roulette is high. But at the end of the day I can't shake the feeling that spending the healthy & free years of my life working 90hrs a week on something that no one will even remember in ten years is a fool's errand. Yes, there is a small chance that I could get rich and never have to work again. But the far greater likelihood is I'll just wind up in my mid-30s doing the same thing and wondering what happened to the last decade. So I work 20hrs a week consulting and spend the rest of my day reading, studying (I'm getting a masters in my spare time), cooking or playing music. There are definitely days when I am envious at my friends who work in tech, what with their fat 401ks and rockin health care and 4x income. But usually not. I'm in way better shape, have read 10x as many books in the past year, traveled more, etc. Most importantly, every time we hang out I just sense that they are unhappy and bored. I realize most of the people reading this are going to be a lot more like aforementioned friends than like me so I hope this doesn't come off as insulting. When I think of my friends I really wonder what makes it worthwhile for them--but of course I could never ask that without sounding like a jerk. So if anyone is reading this I'd love to hear. Is it just the $$? Because I feel like you need so much less of that than you think to be really happy.
- mncaudill 17y agoCompletely tangential, but how did you get into consulting? I'm also in my 20s, in a tech-heavy area (RTP, NC), and have been considering doing something like that on the side, but have no good idea where to start.
- darnoc 17y agoI just sort of lucked into it. My first job out of college I worked for a professor who went on to start his own consulting firm. They hired me on and when I said I wanted to work as a contractor they were fine with it. I have to say it's a fantastic setup--if you get the chance to become self-employed, take it. The best part is never feeling guilty about being out of the office or taking off for extended periods.. in fact I've probably taken about 8 weeks of vacation so this year. Of course the downside is that vacation = unpaid leave but I find that the time is worth so much more than the money to me right now. My job is kinda specialized, it has to do more with statistical programming and mathematical modeling than the coding that most people on HN do, so I guess that helps when it comes to trying to go it alone. To the extent that I'm qualified to dispense advice it would be to develop a specialized skill that your average competent hacker doesn't have, particularly if it involves a lot of math--a lot of good coders I come across know surprisingly little math. Most of the people I know who are successful consultants have such a background.
- runningskull 17y ago$10 million after taxes and I never work again. Invest half in various ventures and live comfortably off the interest from the other half.
- astrec 17y agoInteresting. It's after 9pm here, the staff have long since fled, but a quick look around reveals Mr. $47m, Mr. $14m and Mr. $8m are still beavering away and Mr. $150m+ is still answering email (albeit tersely). I've never yet met someone with FU money who wasn't working (and working hard) - they just seem to be more selective.
- davidu 17y agoThis mirrors my experiences exactly.
- deleted 17y ago[deleted]
- mindhacker 17y agohttp://www.omnisio.com/startupschool08/david-heinemeier-hansson-at-startup-school-08 http://www.omnisio.com/startupschool08/david-heinemeier-hans... I agree with David that no amount will ever keep programmers from programming. So instead of sweating out 14+ hours a day in hope that you can retire in 5 years, why not live your life as you go.
- noodle 17y agoi have two levels: anything money, and nothing money. $500k-$1m is my anything money. its enough money to allow me to do anything i want, but not enough for me to do nothing. i'd still have to work, but i could effectively make money by almost any means, i could do part-time work or take a really low-paying but fulfilling job and maintain my lifestyle. $2m is my nothing number. enough money that i can do nothing and live off the sum. i could maintain my current lifestyle easily with $2m and never have to worry about it.
- wheels 17y agoYou obviously didn't have money invested this year. You would have seen your $2m become $1.5m. I had money in "stable" funds and it hurt.
- noodle 17y agoi did, actually, and i'm about +15% on the year so far. and about the same for the year before. i made some smart (read: lucky) decisions.
- baddox 17y agoSo what is between 1 and 2 million dollars?
- noodle 17y agothats also part of the anything money zone, but i was placing the threshold to hit anything money at the 500k-1m zone. after that, the next important threshold is in that 2m range.
- jhancock 17y agoI had 80% of my own company in the 90s. My outside investors were limited enough that I could sell when I wanted. I walked away from $20M buyouts twice. 2 years later, things became unstable and then just fell apart. I kept pouring funds in to save it for another 3 years until I was too financially crippled to keep going. My advice: at 5x, sell. That's over 2 years your predicted growth. The money you've got is the best money you've got.
- nazgulnarsil 17y agoI don't understand the mindset, but maybe that's because I've never actually been offered that much money (studies show that money tends to accentuate our preexisting biases). But I mean what sort of comparative outcomes could you have been looking at to make you turn down $20 million? Say the company tripled in value and you sold for $60 million...did you have plans of what you needed to do with 60 million that you could not do with 20 million? I'm sure you've done enough beating yourself up here and I'm not trying to insult you, I'm honestly curious as to what your thought process looked like at the time. That way if I ever have the same thoughts I'll know of at least one example where they obviously weren't justified.
- jhancock 17y agoI didn't have plans for $20 million, ephemeral or real. I didn't have a number at all. But I think that's symptomatic of the problem. The problem seems to lie in the "suspension of reality" that exists for many entrepreneurial endeavors. I wasn't "in it for the money" when I started. I was trying to "change the world". I hadn't finished changing the world yet, so a buyout was only money to me. The correction of course, is to understand that your business is for the purpose of making money first and other things second. But its hard for most inventors to get motivated and work so hard for money. Its much easier to do it for a grander purpose. The problem is this "suspension of reality" bubble is hard to break once you've made it past the initial successes. Do I have regrets? A little, but not overwhelmingly so. I have plenty in life to be thankful for. I put the lost money in the category of "yet another multi-million-dollar-MBA" I've earned ;).
- pkrumins 17y ago$1M
- jodrellblank 17y agoYou live in Latvia, yes? I imagine that to be a generally cheaper cost of living than many places represented on HN, and your answer is less than many peoples. Coincidence? Or are you a frugal person? Or are you considering it as a nice start that could carry you to something else more profitable? If you had a company you could sell for $1M and were predicting it to be worth $2M in a year, as the original question predicts a doubling every year, would you be tempted to hold out another few months for $1.5M?
- pkrumins 17y agoYes, I'm from Latvia. I calculated that if I had $1M, then on 2.5% interest rate it would give me $25.000 per year, which is $2.000 per month, and since my favorite activity is self-education, $2.000 seems enough to live comfortably and do what I love. I am not sure if it's a coincidence or not. Well, if I had a company that was worth $1M, I think I'd push its value to $10M and then sell it. ;)
- winstonwiener 17y ago$69 million