Good morning, fellow founder! 👋

Welcome to another edition of FounderForge. Your Europe-focused startup digest - just because we do things a little differently here! 🇺🇸 👀

If you missed our last issue, you can still read it at the link below! 👇

Today's topics are all about your personal finances (or how to avoid staying broke…) 🤑  

• Personal Wealth Growth as Founder 🏚️

• How to Invest as a Founder 💸 

📊 Data Dive: Personal Wealth Creation

This may be true in theory, but in reality, there is a BIG difference between paper money and hard cash.

More often than not, founders are rich on paper… and dead broke in real life.

At least in the early days... things do get better.

Wealth does not grow linear

When you look at how your net worth (= the total value of your assets - all your liabilities) changes over time, you should, in theory, feel pretty good about it.

Throughout your working life, your income will increase significantly and so will your net worth as you ideally start to invest your capital to earn some juicy compound interest.

But this is the classic employee route - and as we know, most founders don't take it.

If you start your own business, your wealth curve may be much steeper - but it will also stay flat for longer.

At worst, forever.

But that's not going to happen to us, is it? #hellosurvivorshipbias

The founder wealth disparity

The personal financial situation of founders is characterised by a high degree of volatility and risk.

Founders often start with limited resources, relying mainly on personal savings and debt.

👉️ You may be rich on paper, but it's far from liquid.
To be honest, your paper money is probably not worth a penny of real money (yet).

👉️ Your only source of income is tied to a massive concentration of risk.
If the company is not doing well, you are likely to be one of the first to take a pay cut.

👉️ Normal 'saving for retirement' seems at odds with your risk appetite.
What difference will 25k make if you make millions on your exit?

However, a little risk-averse thinking can also be good for your business - it might even allow you to push even harder.

Net worth = early company runway

In essence, it is a very simple calculation:

High personal expenses ⇒ Higher salaries ⇒ Less time to figure it out before the company goes broke.

In the startup game, being on top of your personal finances can be a competitive advantage.

The financial strain on founders is evident, with 1 in 3 starting their company with less than €5.000 and funding it with a mix of loans from credit cards to friends and family.

It is better to think ahead and have clear control over your overall finances - even at a younger age.

🛠 Founder’s Toolkit: Investing for Founders

The basics of investing apply to founders too (duh).

[Skip this part if you have a basic understanding of personal finance]

Basically, why do you need to save and invest money in the first place?

First of all, you want to have a safe net for times when you have no income (very realistic as a founder).

Second, you want to have financial freedom later in life.

So how do you get there?

You start by saving regularly - whenever money comes into your account, put a percentage of it aside.

Part of it is used to build up a cash reserve that will cover your expenses for 3-9+ months.

The rest is invested in various assets (e.g. stocks, ETFs, crypto).

The biggest difference between founders and non-founders is that you play with risk differently - and as a result, investing for 10, 20 or 30 years often does not feel "smart".

Focus on liquidity

Since your startup's shares are already illiquid enough, the focus should be on liquidity.

Or at least assets that you can convert into cash very quickly.

Part of this is the savings account.

The other part should be invested in ETFs and other more liquid and less volatile assets.

That way, in the unlikely event that you need cash, you can always sell your assets.

Yes, ideally you hold them for a very, very long time - but the reality is that your own company always comes first.

Spread your risk

So far we have played it safe - maybe too safe?

In one of our last issues, we talked about micro-angel tickets.

As a founder, you tend to have the network to invest in other founders.

Although this is a great learning option as you gain information from another startup, it can also be a valid investment option.

Ideally, you should add some smarts to your gut feeling:

• Understand the startup's business model

• Do due diligence on the team

• Diversify - aim for 8-12 investments to spread the risk

• Use your added value to help the startup and the team

• Think about a possible exit strategy

Personal Finance 101: Beatvest

Do you feel out of control with your finances? Or do you want to learn something new about the world of investments?

This is exactly what today's partner Beatvest wants to solve.

Beatvest breaks down financial terms and gives you an easy and pleasant learning experience with small and creative learning lessons.

Also, if you don't like the new design of Trade Republic, Beatvest is also there for you, as they will soon be launching their own trading experience.

🔗 Founder's Library: Curated Resources

A collection of random reads that the FounderForge team enjoyed.

• How to Approach Campaign Construction by Jon Loomer (for the performance marketers out there)

• UX Accessibility: Everything You Need to Know by Madison Zoey Vettorino

• Product-Led vs Marketing-Led SEO by The Product-Led Geek

• The Founder’s Guide to Creating a Culture of Connection by Dr. Carl Nassar

• Rules for Being a Founder by Greg Isenberg

• A Simple Framework for Handling Customer Feedback by David Cancel

😂 Meme of the Fortnight

Founders... always looking for the easy way! 👀 

🤔 Your Thoughts on Today's Edition

• 🔥 It was great!

• 😒 Meh - it was okay.

• 👎 Not interesting to me.

That's all for now!

If you find this newsletter valuable, share it with a friend!

Cheers,
The Founders Blacksmith 👋

Issue #14 | 21. March 2024