Michael Sonnenfeldt. Post-Liquidity Ultimate Wisdom.
Dec 28, 2023
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Michael Sonnenfeldt, founder of TIGER 21 and serial entrepreneur, shares profound insights on life after a liquidity event. He discusses the critical need for introspection post-exit and how such experiences teach humility. The conversation dives into the ‘2% rule’ for spending, the contrast between angel investing and capital preservation, and strategies for finding new purpose after a business sale. Sonnenfeldt emphasizes the importance of patience, gratitude, and giving back, and reveals how creativity can drive financial success.
Post-exit introspection is vital for entrepreneurs to clarify their motivations and navigate future paths after selling a business.
The drastic shift from business profit to passive investment income underscores the importance of setting realistic spending expectations for sustainability.
Successful entrepreneurs must adapt to new strategies for investing, as their entrepreneurial traits may hinder effective risk management in passive investments.
Deep dives
Post-Exit Entrepreneurial Pathways
Exited entrepreneurs face a critical decision on whether to pursue investing or entrepreneurship in their next venture. Many underestimate the time and effort needed to start a new business, often leading to unrealistic expectations about their ability to replicate past successes. The podcast emphasizes that successful entrepreneurs may not be qualified investors, as their skills in building businesses do not easily translate to managing passive investments. A thoughtful introspection period is essential for understanding personal motivations and clarifying future directions in their careers after an exit.
The Importance of Realistic Wealth Management
Following a liquidity event, many entrepreneurs struggle with the drastic shift in income when they transition from business profits to passive investment returns. The discrepancy can be shocking; for example, after selling a profitable business, an entrepreneur might find their yearly income drops from millions to just a fraction from investments yielding 2 to 3 percent. This adjustment teaches ex-founders to set realistic expectations about the sustainability of their wealth and the importance of prudent financial management. Understanding this change is crucial to prevent feelings of loss and maintain financial health.
The Two Percent Rule for Sustainable Spending
The '2% rule' suggests that individuals should only spend about 2% of their wealth annually to maintain their capital over a long term. Entrepreneurs often misjudge their spending capabilities after an exit, leading to financial depletion faster than anticipated. The conversation explores how many people mistakenly believe they can afford to spend significantly more without considering the sustainability of their wealth. Adopting disciplined financial habits from the outset can help manage funds more effectively and ensure long-term stability.
Entrepreneurial Traits vs. Investment Skills
The traits that make entrepreneurs successful, such as risk-taking and intense focus, can hinder their performance as investors. Entrepreneurs often focus on single opportunities, whereas successful investors engage in diversification to mitigate risks. The podcast discusses how many entrepreneurs, accustomed to profiting from their own ventures, find it challenging to adapt to the cautious approach required for passive investing. Those hoping to invest effectively after a business exit must develop new strategies and cultivate a balanced understanding of risk.
Navigating Loneliness and Relationships Post-Exit
After a successful exit, entrepreneurs often experience loneliness and isolation due to the stark differences in lifestyles between themselves and their peers. The newfound wealth can create challenges in maintaining relationships as traditional social dynamics shift. Successful individuals might feel compelled to hide their wealth or overcompensate by including friends in their newfound lifestyle, making it hard to balance among existing relationships. Strategies to foster genuine connections while navigating wealth are essential for ensuring personal fulfillment and happiness after significant life transitions.
If you enjoyed this podcast, I recommend you check out my first conversation with Michia Rohrssen, which you can find here
My guest today - Michael Sonnenfeldt - is the source of ultimate wisdom on the life after a liquidity event. He has build and sold multiple companies and is the celebrity founder of TIGER 21, an exclusive global community of ultra-high-net-worth investors. Michael creates exquisite art, collects photography and runs a venture philanthropy firm focusing on climate change.
We discuss the importance of post-exit introspection, how a liquidity event teaches us humility, rules of prudent spending, capital preservation vs angel investing, and how to decide whether to start a new business or focus on passive investing.
Michael Sonnenfeldt
“A new business or passive investing?”
How much of my exit money can I spend a year? The famous 2%
rule vs the Barbell investing strategy.
“The worst training ground for a successful investor is being
a successful entrepreneur.”
Advice to the recently exited: Take 3-4 years to fully invest
Exited founders vs wealth managers
Angel investing
Do I need a family office?
“Luck favours those who are prepared and willing to take the
risk.”
How to turn creativity into financial success. Right team +
luck.
Serial entrepreneur or a one-trick-pony?
Why taking time to think after a business sale is vital.
Finding a new purpose after your liquidity event. Gratitude.
Giving back through business. “Climate portfolio.”
Why impact investing may be unsustainable. Your employees’
needs vs your purpose. We do not accept sub-market returns in venture
philanthropy.
Finding new purpose and identity. “My father was the chief
interpreter of the Nuremberg trial at the age of 23.” “Identity of someone
giving back.”
Charity vs philanthropy. Ego vs necessity
International travel as a form of post-exit introspection
10,000 hours and passion for photography. Great
photographers’ estates.
Source of fulfilment
Art as business
Wealth can be very isolating. “Think Bigger” Book
How to be sufficiently discerning.
Buying time and happiness with money
How to say no to money requests? Envy blindness
“If my success is luck do I deserve and shall I keep it?”
How to NOT spoil children with wealth
Prepping children for wealth and inheritance
If you are not discerning about people you’ll end up hanging
out with a bunch of creeps!
Meaning and purpose. Meditation
How Tiger 21 was created. The power of peers to learn from
each other.
What I’ve learnt from my 47-year-old marriage and raising 4
kids
