Money Bear Club Answers: how to manage wealth after a successful IPO?

In the series “Money Bear Club Answers”, Money Bear Club will publish the best answers from its Quora profile. The answers will range widely from business and investing, to budgeting and the philosophy of the everyday life. Read on to find out more unconventional perspectives and solutions!


Originally answered: June 27th, 2019.

Question:

How should I manage my wealth after a huge IPO? I’m in my early 30s, and my technology startup just went public, and now my net worth is $180M. It is nearly 200 times what it was a year ago. I want to diversify my investments wisely.

Answer:

First thing you must determine? Whether the share price will fall or increase significantly in the next 5–10 years.

If an increase is likely, it could bring your net worth closer to a billion. If not, you could lose most of the newly acquired net worth.

ipo wealth management

Wealth management after an IPO. Copyright: Money Bear Club.

Determining the future value of the share price is important for choosing how much diversification your assets should undergo.

The higher the probability that the startup share price will increase, the less diversification your assets should undergo. No one wants to be the person who sold their FB or TSLA shares before their price skyrocketed.

Let’s look at the diversification, and the percentages of different assets, $180M could net.

$180,000,000/200 times=$900,000. That means that the person requesting the answer was functionally a millionaire, and very likely owns property, instead of renting. This is important for choosing the personal savings rate, and for deciding what the first investment after cashing out should be.

Hence, we can eliminate real estate from possible investments. The returns still are too low, all things considered.

Let’s say that the technology startup will be very successful, and the asker will follow the 80/20 principle.

So, that means $36,000,000 left to invest into other assets.

With $36,000,000 the possibilities are essentially endless. Being an angel/VC/silent investor is possible. Investing with hedge/mutual funds is possible. Massive gains from traditional investments are possible.

Many moderate investors would choose to invest 60% of their money into high risk (angel, VC, silent investor), and 40% into lower risk investments (mutual funds, traditional investments). In this case it would mean $21,600,00 for higher risk assets, and $14,000,000 to lower risk investments.

The amount of the money invested into other assets should be increased, if a decrease in the share price of the company is likely to occur.

Final thoughts to remember

  1. Taxes. Investment gains taxes and other taxes. They have to be accounted for.
  2. Successfully determining the future worth of the shares will make or break your wealth.
  3. Retirement. Setting aside a few millions, and never touching them before retirement is essential. A fast and large wealth increase may not last forever.

This answer is not intended to be taken as financial or investment advice.

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