Key Takeaways
- The concentrated bet on your own company is appropriate while you are building it. It is not appropriate forever.
- Angel investing compounds through learning as much as through financial returns.
- Diversifying into alternatives requires the same due diligence as the primary business, not less.
The standard financial advice for entrepreneurs, diversify your net worth, runs directly against the conventional wisdom about commitment: bet fully on your own company, do not hedge. Both pieces of advice contain truth and neither is universally right.
Saim Abbasi thinks about personal financial diversification as a function of company stage. While building and before a liquidity event, concentration in the company is appropriate and often necessary. After liquidity events, the calculus changes.
Angel Investing as a Learning Investment
For entrepreneurs who have had a liquidity event and want to deploy some of the proceeds into alternative investments, angel investing in early-stage companies offers returns that are both financial and educational. Seeing how other founders build companies, make decisions, and navigate their challenges provides a perspective that improves how you run your own business. The financial return is the potential bonus. The learning return is more reliable.
The Due Diligence Standard
The mistake most successful entrepreneurs make when diversifying into alternative investments is applying less rigor than they would to their own business decisions. A real estate investment with vague projections and no downside analysis would not survive the same founder's scrutiny if it were a business proposal. The same standard should apply to every investment decision, regardless of asset class.
The Stage Matters
Saim's framework for entrepreneurs thinking about diversification: while the company is pre-revenue or pre-product-market fit, concentrate entirely on the company. After the first meaningful liquidity event, start building a personal financial baseline that does not depend on the next company succeeding. The entrepreneur who has genuine financial security, separate from the company, makes better operating decisions because they are not making decisions from a position of financial desperation.
"The founder who diversifies wisely is not betting against their company. They are ensuring they have the stability to take the right risks inside it."